August 31, 2017
Chief risk officers have slowly been expanding their job description since the years following the 2008 financial crisis. As the industry pushes for more transparency and better risk management, their input is becoming more integral to strategic planning. In fact, they can account for what most sales and marketing forecasts are missing: unforeseen, unexpected and unwelcome scenarios. Crafting an exceptional forecast means you’ll need to be aware of a few strategies CROs employ to mitigate risk.
Here are the 5 best kept secrets of forecasting with risk in mind:
Augment Qualitative Analysis with Quantitative
Trusting your gut feelings can be useful, but your assertions should have support in real world data. When introducing a new product in a portfolio of products, for example, you’ll need to pull from relevant historical data from similar roll outs. When forecasting, you can use strong pieces of information for some much-needed illumination. Again, you may feel you understand your competition inside and out, and know how they will market to their target consumer in the coming quarters, but you’ll want to perform analyses based on real world data to make your claim valid.
Look far into the future and even further into the past
Forecasting is the process of creating an outline of the future based on present data, but this in no way suggests that you bound to the present. Long-term thinking is crucial to producing useful forecasts.
Predicting what will happen in two weeks is much more difficult than making guesses as to consumer trends in two years. Similarly, it’s easier to identify what will happen in the next two months, if you account for trends over the last five years. “Search for similar patterns, keeping in mind that history especially recent history rarely repeats itself,” writes Paul Saffo for the Harvard Business Review in his article Six Rules for Effective Forecasting. “So when you look back for parallels, always look back twice as far as you are looking forward.”
Plan for Disruption
It’s difficult to predict how and when a disruption will emerge. The emergence of the Internet vastly changed how media is consumed, for example. It would be difficult for a publishing company to predict that an online retailer might cut into their sales by distributing electronic books. Certainly, Condé Nast couldn’t have predicted that tablet usage might dig into their subscription base. While it’s impossible to pinpoint these disruptions, you should plan with the assumption that they will occur. A poor marketing forecast neglects to stress tests their marketing efforts vis-à-vis disruptive technologies and products.
Create Multiple Scenarios
Thinking linearly isn’t the optimal way to forecast. Create scenarios for your sales forecasting that assume the best, the worst, and the indifferent. Know your sales funnel inside and out, following your target consumer all the way through, for example. Then, adjust your projections based on both internal and external risks. You may want to plan for exceptionally high and abysmally low conversion rates. Perhaps a disruptive event will change how willing your target consumer is to purchase your product or service. Try to account for these as you outline all the possible outcomes of your marketing efforts.
As you set along the path of forecasting, you will be presented with new and interesting information. Sometimes the data you receive will be contrary to the conclusions you’ve reached. Perhaps you’ve been presented with new data, and now need help with adjusting your market research. Be open to these adjustments as these pieces of information can show you that your forecast may not have been as accurate as you thought.
When predicting the future, be prepared to be wrong. Often, we overlook important data, underestimate risk, and overestimate our precision. As long as we’re willing to address and reassess these weaknesses, however, there’s a chance we can make accurate forecasts. Forecasting is perilous work, one that requires you to be as shrewd and pragmatic as a chief risk officer. You’ll have to investigate how your marketing plan will change based on disastrous events and disruptions. Use data to back up your assessments, peer into the past as well as the future, create multiple scenarios, and revise as often as you can in order to formulate informed sales and marketing forecasts.