Evaluation of Sales Forecasts

Before submitting forecasts to higher management, sales executives eval­uate them carefully, regardless of the extent of their personal involvement in the preparation. Every forecast contains elements of uncertainty. All are based on assumptions. So a first step in evaluating a sales forecast is to examine the assumptions (including any hidden ones) on which it is based. Sales executives should view each assumption critically and note particu­larly any that seem unwarranted, testing each by asking: If this assumption

was removed, or changed, what would be the effect on the forecast? They should evaluate the forecasting methods objectively, asking such questions as: Are there any variations here from what past experience would seem to indicate? Has sufficient account been taken of trends in the competitive sit­uation and of changes in competitor’s marketing and selling strategies? Has account been taken of any new competitive products that might affect the industry’s and company sales? Have inventory movements at all distribu­tion levels (including those at wholesale and retail levels) been considered?

Sales executives should evaluate the accuracy and economic value of the forecast as the forecast period advances. Forecasts should be checked against actual results, differences explained, and indicated adjustments made for the remainder of the period. When the period’s sales results are recorded, all variations should be explained and stored for future use in improving forecasting accuracy.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.