Gaming the forecast


Business forecasting is a highly politicized process, subject to the biases and personal agendas of all forecasting process participants. This is why many -- perhaps most -- human adjustments to the forecast fail to make it better. And this is why relative metrics, such as FVA, are so helpful in properly evaluating process performance.

The Games People Play

John Mello
John Mello

In his article "The Impact of Sales Forecast Game Playing on Supply Chains" (Foresight, Spring 2009), John Mello provides a useful taxonomy of seven such games that bias the forecasting process and degrade forecast accuracy.

Enforcing: Maintaining a higher forecast than actually anticipated sales, in order to keep forecasts in line with the organization's sales or financial goals.

When the voice of the marketplace is screaming that you aren't going to hit your sales targets, this should be considered a blessing! Perhaps now, knowing about this in advance, you can do something to address the demand shortfall. Unfortunately, many organizations ignore the screaming, and simply adjust their forecast to meet the objective. It is easy to understand why this happens, because as a practical matter, as long as your forecast still meets your target, your boss won't scream at you!

Filtering: Changing forecasts to reflect the amount of product actually available for sale in a given period.

When you are capacity constrained or otherwise experiencing demand greater than supply, a great way to show 100% forecast accuracy is to forecast sales equal to the expected supply.

Hedging: Overestimating sales in order to secure additional product or production capacity.

No sales person wants to explain unfilled orders to his or her customers. How to avoid this? Simply forecast a lot more than you really expect to need. (Just make sure your heightened forecasts go only to the supply planning folks, not to your own sales management. See next.)

Sandbagging: Underestimating sales in order to set expectations lower than actually anticipated demand.

For your sales management, send in low forecasts. That'll help keep your quotas within reach, and win you that award trip to Hawaii.

Second Guessing: Changing forecasts based on instinct or intuition about future sales.

Sometimes there is no data (new products), or the data may be otherwise inappropriate or insufficient. Sometimes you have to make adjustments based on experience and knowledge of the business. Just make sure to track the performance of such adjustments to make sure they are actually improving accuracy and reducing bias.

Spinning: Manipulating forecasts to obtain the most favorable reaction from individuals or departments in the organization.

Control the data, and control the means of measurement, and you can control the message.

Withholding: Refusing to share current sales information with other members of the organization.

Who wants to get yelled at twice? Why tell your boss you aren't going to hit this quarter's numbers (and get yelled at now), when you can just keep forecasting the hockey stick and only get yelled at quarter end after the sales don't materialize.

How many games are going on at your organization?


About Author

Mike Gilliland

Product Marketing Manager

Michael Gilliland is a longtime business forecasting practitioner and formerly a Product Marketing Manager for SAS Forecasting. He is on the Board of Directors of the International Institute of Forecasters, and is Associate Editor of their practitioner journal Foresight: The International Journal of Applied Forecasting. Mike is author of The Business Forecasting Deal (Wiley, 2010) and former editor of the free e-book Forecasting with SAS: Special Collection (SAS Press, 2020). He is principal editor of Business Forecasting: Practical Problems and Solutions (Wiley, 2015) and Business Forecasting: The Emerging Role of Artificial Intelligence and Machine Learning (Wiley, 2021). In 2017 Mike received the Institute of Business Forecasting's Lifetime Achievement Award. In 2021 his paper "FVA: A Reality Check on Forecasting Practices" was inducted into the Foresight Hall of Fame. Mike initiated The Business Forecasting Deal blog in 2009 to help expose the seamy underbelly of forecasting practice, and to provide practical solutions to its most vexing problems.

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