Helping the Chronically Overworked Find Life Balance

Why You Should Care About The Revenue Forecast

Chapter 9: Paint Your Environment: Part 4

As I argued in the last post, if you want the company to do the right thing, make sure you have a set of numbers to back it up. To fully understand why I think this is critical, lets step back for a moment and look at where a revenue forecast come from.  The Cambridge dictionary online defines a revenue forecast as “a calculation of the amount of money that a company will receive from sales during a particular period.”

In a very real sense, a revenue forecast is a prediction of the future, and a forecast can have a very real impact on the day-to-day activities of employees.  It is tempting to think that these numbers are scientifically derived and reliable, but often they come from sticking a finger in the air, and then justified after-the-fact in Excel.

I heard a cautionary tale from “George” the former VP of marketing at a mid-sized biotechnology company about how a bogus forecast helped propagate a disaster.  Research created an elaborate robotic system to streamline the user experience for one of the flagship product lines.  After a few experiments, they pronounced it ready to ship to customers, and did not need to go through a formal development process.

I cringed when I heard the story.  Product development is always needed to make a new technology robust enough to work consistently in customer hands.

But “ready for customers” is exactly what the CEO wanted to hear.  He was a Scorpion, a “visionary” who felt that the technology should sell itself.  The President and CFO were hungry for revenue growth, and via a process that sounds a lot like groupthink, the executive team convinced themselves that “we should be able to make $10M on this product this year.”  Marketing then back calculated the number of units, service contracts, and consumables that would need to be sold to make the forecast.  (As a point of reference, this represented 25% of the company’s projected revenue growth for the year.)  Then when the product ran into development issues, the same executives went on a headhunt to find out where the number came from.

The rest of the company scrambled to fill the $10M revenue hole.  Timelines for other products were accelerated, and employees throughout the organization put in long weeks to “make it happen.”

Bad management?  Sounds like it.  But there was not a rush of people heading for the door.  Inside the asylum, everyone looks sane.  (See this post on stress and loss of perspective for more.)

How far will your company go to make the numbers?  Where do the numbers come from?  If you can’t control the forecast, what can you control?

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