Wednesday, August 23, 2023

6 Keys To Predicting The Performance Of Your Business

business-forecastEvery business owner and entrepreneur like you I work with wishes they could better predict product demand and sales, for managing inventory and long-term business planning. We all have our favorite metric and our passion, but keeping up with real-world changes and trends seems to be always just out of reach. The issues are people oriented, and require trust and teamwork.

I was impressed with the analysis and recommendation offered in a recent book, “Trust the Plan: Demand Management For Business Leaders,” by Greg Spira. Greg brings a wealth of experience based on his work with a wide range of industries, including packaging, chemicals, healthcare, and fashion. He is an expert on the people issues, and well as the process for predicting demand.

In my experience, these people and process issues are much the same for all business metrics, including sales and customer service, as well as planning for the future demand of your product or service offering. I am pleased to paraphrase here his top six recommendations for measuring and predicting future performance, with my own insights added:

  1. Demand management is not about blame or reward. Measuring performance should be thought of only as a way to continuously learn and improve. When your team sees rewards and punishment, they will tend to do what it takes to obtain the reward or to avoid the punishment even if it means applying poor judgement and risk management.

    In my experience, all business metrics are still used too often for people management and accountability, rather than business management. The key performance indicators (KPIs) that I recommend all relate directly to business and not personal performance.

  2. Embody the goals and objectives of the business. Make sure your future demand plan embodies a holistic view of the business, including achievement of strategic objectives, market share, efficiency and effectiveness of marketing activities, as well as plan revenue and margins. Accurate measurement of the wrong things is not helpful.

    Key strategic factors for every business should include profits, growth, and competition. The data for these should come from internal data analytics, and be compared to industry averages compiled by third-party analysts, published by many industry organizations.

  3. Assess your measurements for trustworthiness. The first key to trust is to make sure that everyone believes that all data used is accurate and relevant. Gather feedback regularly from your team and customers to check for market and perception changes. Of course, if you consistently override the data, or use it negatively, you will not garner trust.

    If you want trusted measurements and leadership, it's also crucial that you put the practice of transparency on the highest pedestal. Demonstrating transparency means sharing data and sources, the state of the union, and why you have made each decision.

  4. Use any knowledge of bias to make better decisions. Bias is defined as a plan that is consistently overly optimistic or overly pessimistic compared to actual. Every plan will have some degree of inaccuracy, but a believable plan should have minimal bias, and need minimal adjustment. Too much adjustment results in a loss of trustworthiness.

    In my view, every demand plan, even without any bias, will still have errors, and those errors will be impossible to predict by downstream users simply based on past results. Thus, there is no better option than to simply make decisions and rely on the plan as it is.

  5. Define an acceptable level of measurement error. An acceptable measurement error is really a statistical calculation, rather than an arbitrary dictate from management. Two main contributors to measurement errors include the size of the sample and the variation in the underlying population. Use statistical tools often to validate your assumptions.

    Most statisticians agree that for a good measurement system, the accuracy error should be within 5% and precision error should within 10%. But deciding what is accurate enough for your business must tie back to your own assessment of cost/benefit trade-offs

  6. Plan for the next measurement improvement. Make sure you know where you are today, what it will take to improve, and the expected impact of those improvements. Any improvement plan should consider the costs to achieve those improvements balanced against the benefits that will be realized by the different users of the specific metric.

With these priorities, I’m convinced that most of you can improve your overall planning process and business metrics to be more relevant and lead to greater accuracy and confidence in future results. The challenge for most of us as leaders is to spend more quality time working on the business, rather than in the business, to keep up with changes to assure long-term success.

Marty Zwilling

*** First published on on 08/02/2023 ***



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