Forecasting is easy, but doing it well is hard. I am talking about financial forecasting that is required of project managers engaged in the business of delivering professional services.
Before we get into how to forecast, let’s look at why we forecast. It is an essential part of managing the flow of business activities aimed at achieving a goal that has been set. The idea is to look into the near term future and make an informed guess as to the billable milestones that will be achieved by a certain date. If the forecast deviates too far from the goal, you and management will have the opportunity to take action to put things back on track.
It also is used to set expectations for income, which can be very important to stock performance (I have a special rant related to this but won’t go into it in this post). Since we are setting expectations, we better make sure we achieve those expectations or else we will find ourselves in an unpleasant situation.
Now that we know why we make forecasts, let’s see how it is done.
As I said at the beginning, forecasting is easy. You assign a number to a date and you have a forecast — easy. But how do you know it is the right number and the right date. That is the hard part. It is hard because we are making guesses and guesses are easily influenced by our internal desire to make the goal setters happy by giving them the number requested. But if we don’t know if the number given is going to happen, everyone could be in a world of hurt when the goal date arrives. This is a case of trading near term happiness for long-term sorrow later.
The key to giving accurate forecasts is to have a set of rules to follow that help keep emotions out of the equation. This will also make forecasting much less stressful. Here is what I do that has worked fairly well for me so far.
- All milestones start out with a forecast that puts them beyond the current forecasting period, such as the next quarter or even next year.
- Once a milestone has been planned and scheduled you can then assign a completion date that you will have some confidence in actually happening.
- Modify your forecast every time you complete a status call or receive new information relating to the schedule.
Following these three rules will make forecasting easier, more accurate and less stressful. Of course it may not make life pleasant if the number you are forecasting does not meet the desired goals. But actually, that is a good thing since the whole point of forecasting is to allow management a chance to take action to achieve the goal before it is too late. By following the rules above you are making fact based guesses that are supportable and defensible because they are based on solid information. The same is true for changes made in the forecast since as circumstances change so does the likelihood of achieving the goal.
Using fact based forecasting methods is the only way to do it. You have to not let the pressure from the person who sets the goals drive you into giving a number that cannot be supported by facts. Following the rules will keep you on track. As you develop a reputation for having accurate forecasts, your value to the company will rise and you will have pride in how you deliver.