ConAgra stock recently dropped 7.4 percent, or about $1 billion, in market capitalization when it reduced its earnings forecast from $.60 to $.55/share. Had its previous forecast been a $.55-$.60/earnings per share range instead of a firm $.60/share, no one would have noticed. Learn from this. Switch from single-point to range forecasting now.
ConAgra's CEO Gary Rodkin said the miss "was driven by two key factors; one, weaker than planned Consumer Foods volumes, and two, significantly lower profitability in our Private Brands operations."
They had expected Consumer Foods sales of almost $1.9B (down 3 percent versus prior year) but ended up with sales of $1.8B (down 7 percent).
Their forecast meant something totally different if
• $1.9B was the absolute maximum they could sell if everything went right,
• $1.9B was the bare minimum they were going to sell even if everything went wrong,
• $1.9B was the most likely forecast.
These might have translated to:
• somewhere between $1.7B and $1.9B
• somewhere between $1.9B and $2.1B
• somewhere between $1.8B and $2.0B
The issue is not that people lie in their forecasts (though some do). It's that different forecasts mean different things to different people and lead different people to expect different things.
Don't believe precise forecasts. As Wharton Professor Leonard Lodish puts it, "It's better to be vaguely right than precisely wrong." So, push for a range and for an understanding of the scenarios that lead to the range.
Net, range forecasts with explanations give you more and better information than do single-point forecasts. Switch to range forecasts.
Tighten the Range
Once you've done that, work on ways to tighten the range.
Jeff Fotta is the president of Gryphon Networks, a company that makes sales intelligence and marketing compliance solutions for distributed workforces. Their cloud-based technology collects and analyzes call data from any device to transform sales activity into actionable sales intelligence. It removes that subjective bias of sales rep CRM input, to produce more accurate sales forecasts and teach underperforming sales people best practices gleaned off of the top-performing ones. Sales Intelligence helps sales managers get clearer visibility as well in three ways:
1) Gryphon is "in the path of the call." As Fotta explained to me, classic CRM systems fall down when salespeople fail to populate the database or do so later when the information is cold. Gryphon's systems capture call data, transcripts and post-call disposition automatically in real-time (appointment-set, follow-up, do not call, etc.)
2) Gryphon collects "all the data in one place." It's hard to manage contact activity of dispersed sales teams. It's hard to get a rolled-up view of sales information across sources (office phone, mobile phone, dialer, CRM). Gryphon's system is device-agnostic and delivers all activity into an intuitive interface
3) Gryphon improves forecasting - giving management better insights into the accuracy of detail behind the forecast certainly improves the validity of the sales pipeline, to tighten the range. Fotta described how one of their clients applied sales intelligence to reduce the time to train, evaluate and make go-no go decisions on sales people from 6 months to less than 3.
Implications for you
1) Give up on precisely wrong single-point forecasts. Even if they are well thought through, it's hard to figure out what they really mean without the full context.
2) Switch to vaguely right range forecasting so people are thinking and communicating in terms of scenarios with a logic that others can understand.
3) Leverage new tools to improve forecasting accuracy and reduce the range and variability.
This is not about forecasting. It's about how better, more easily understood views of what could happen around your business will allow you to mitigate the risks and take advantage of the opportunities in ways that ConAgra and others have failed to do. ConAgra's Rodkin said "We have really been back on our heels this year...reactive". Not you. Certainly not you next time. You'll be ahead of the curve, proactively guiding things towards the top end of your forecast range.