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.
- Projection of current trends forward into the future
- Generation of a model to explain current trends and projecting that model forward
- Scenario analysis
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