I recently had the pleasure of meeting Dr. Chaman Jain, the editor of the Journal of Business Forecasting, at a conference in San Francisco.

Jain has been writing about business forecasting for years, and his publication regularly provides analyses of forecasting best practices.

Here’s a 2005 column from the journal that provides some soul-searching fodder for CFOs, financial planning & analysis directors, and other finance folks who occasionally encounter the need to address – or answer – the Big Question: Why do we forecast, anyway?

The answer, according to the column, is that nearly every function within a company needs an estimate of what the future will look like as a foundation to build their current plans. For example:

• Marketing people need forecasts to estimate the expected demand that will be generated from their activities; to anticipate which customer segments will be attracted, where products are in their life cycle, and actions needed to be taken and their expected impact.

• Salespeople use forecasts to understand what volumes are expected in each period and to evaluate the sales pipeline activity to make sure that it supports those expectations.

• Managers in the supply chain use forecasts to make timely purchasing requests, develop production plans, evaluate capacity needs, and develop logistical plans.

• Finance professionals use forecasts to prepare and understand financial plans. They also use them to report to Wall Street about their earnings expectations.

“It is difficult to quantify the benefits of forecasting; however, in the supply chain, there are certain components that can be quantified, showing the benefits of forecasting,” the column continues. “One way to measure the benefits of forecasting is to see how much would have been lost if the forecast was not accurate. Another way to measure them is how much would have been gained (or saved) with improved forecasts.”

Yes, these are basic, fundamental points. They are also valuable points to cover as you rethink your company’s forecasting approach. As you do, I encourage you to hold up fundamental aspects of your forecasting approach and ask some very basic questions:

• Why do we do this?

• What value does it provide?

• Can we do this more effectively?

By answering these questions, you and your team can ultimately ensure that the forecasting process better serves the needs of your marketing, sales, operations, and finance colleagues. ###