Hank: “In order to be #1 in the iced cream confectionery industry, we need to gross $475 Million next year.”

Jack: “Assuming that we continue to grow at the rate that we are, we expect revenue to gross $310 Million next year.”

Hank: “Impossible. Your forecast must be wrong!”

Jack: “Why do you think that?”

Hank: “Because your forecast doesn’t help us hit $475 Million! It has got to be wrong!”

There are many methods that marketing scientists use to talk about the future.

These include:

  • Projection of current trends forward into the future
  • Generation of a model to explain current trends and projecting that model forward
  • Backcasting
  • Scenario analysis
  • Simulation

Hank is disappointed because Jack delivered a projection of current trends into the future that didn’t meet his aspirations. Hank really has no idea how to use that information. Worse, the information is something he doesn’t want to hear. Hank aspires to be #1.

Backcasting involves starting with an aspiration and working your way backwards. What has to be true in each time period for that aspiration to happen? What variables are salient? What would you do differently to cause a different outcome from the one that is forecasted?

Backcasting is prone to extreme bouts of optimistic and unrealistic assumptions. For instance, that sales scale linearly, and that productivity improves with revenue.

Forecasting is prone to error. It deals with an uncertain future, and, in a way, the generation of a forecast causes expectations to change, triggering different decisions. In other words, the forecast itself may cause different outcomes.

The relationship between aspirations and expectations, forecasting and backcasting, are important inputs into planning. They frequently determine just how much effort goes into searching for alternatives.

Do you use any other tools when you’re planning?

***

I’m Christopher Berry.
I tweet about analytics @cjpberry
I write at christopherberry.ca

2 thoughts on “Forecasting, Backcasting, Planning, Aspirations and Expectations

  1. Great differentiation between fore/backcasting Christopher. What often happens is that execs that are not data-driven tend towards backcasting, and they also discount forecasting as “sandbagging” or a failure to be aspirational.

    The best businesses combine both approaches. They are vigorous in getting their forecasting as accurate as possible in order to confidently answer the question, “If we run the business as we have in the past, how do we think next year will play out?” However, they then still take on the (often heroic) challenge of refusing to accept that the forecast cannot be changed, and ask, “Now, how do we WANT the next year to play out?”

    The benefit to using both is that you have a clear picture of the gap between trends and aspirations, which gives you a base to work from when defining initiatives, metrics, etc. for the coming year.

    One other thing to remember, is if you find yourself in a company that uses both approaches, enjoy yourself! You’re likely in an environment that is fun, and where everyone is clear about how they help drive success. Over the arc of your career, you may find that this is unfortunately the exception rather than the rule.

  2. @Mark Matiszik,

    Thank you for the well thought out note.

    Indeed, I find that, at least in North America, we justify heroic efforts and massive hours using aspirations. When we fall short, we hammer ourselves with self-criticism and thought correction.

    If, instead, we just focused on acting better, we might actually generate better results.

    You’re final point is quite apt – if you ever find yourself in a place that employs both modes of thought – relish it.

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