How to build a yearly volume forecast

July 5, 2011 § Leave a comment

Many companies empower their product manager to fullest responsibilities at forecasting future sales according to support plans. They are required to talk to the sales force, identify new openings or store foreclosures, innovation and others like supply chain problems that might affect the results or multidisciplinary teams that collaborate on a holistic vision of the future environment and settle a common forecast. Almost everywhere the volumes are build bottom-up, this encourages the young collaborators to target ambitious goals (to show off) – but reachable – while the supervisors know that they require big “protected” budgets to achieve the goals. Normally the volumes are kept or increased (a little) while the budget is cut to managers acknowledgment of requirements (and goals)

However, not every company builds it’s volume bottom-up. There is management trend to construct the volumes (forecasting) top-down – as to guarantee “big picture”. Senior managers have the “holistic vision of the business” and instead of asking typical: where we are?, what’s the best we can do? Or How to better our business?, they establish where they want to go, what is required to do and, in consequence, it all goes down in cascade to the collaborators bellow.

If you were the CEO, how would you make your Business build the forecast? Top-Down or Bottom-Up?

Here are some pros and cons from each type of management style:

Top-Down Bottom-Up
Pros:

  • Managers have a better holistic knowledge of the marketplace and avoid inter-category or cross divisional barriers.
  • It is very difficult to challenge goals that come from above, hence, collaborators have to re-check every assumptions prior exposing any doubts.

Cons:

  • In some cultures where the “boss is always right” and every disagreement returns in a hassle, the easy way is to avoid confrontation and dismiss “grave foreseeable problems ahead”.
  • Collaborators receive a pre-approved package that they didn’t work on, so they don’t own it as their own.
Pros:

  • Younger collaborators feel empowered and listened, building commitment toward executing plans and reaching goals.
  • Big targets require sub-divisions and sometimes forget taking into consideration day-to-day situations that avoid things to happen.

Cons:

  • Require a Supervisory review to warrant that the goals are high-enough
  • Require the alignment of cross-category managers to the achievement of holistic goals.
  • May lack the vision to include big projects

I’d like to take this opportunity to once again ask for your thoughts on this subject.

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