Business Plans - The Rules of Forecasting, Part 2 of 2
This article completes our two-part discussion about the rules regarding forecasting that we apply in writing business plans. We share them with you in this article in the hope that you will find these rules worthy of adopting in your efforts to write business plans as well.
Rule 5: Question basic assumptions.
It is always a good exercise to question the basis for any assumption. You may find the basis is not defendable. You may even learn a better way to develop or present the assumption.
Corollary 5A: When a forecast is developed around a specific policy or procedure, question that policy or procedure.
Rule 6: Develop forecasts in the context of the entire system and properly reflects all relationships.
It is important to understand that everything in the company affects everything else. For example, if you need to adjust the number of employees, you may also need to adjust the office space needed.
Rule 7: The granularity (time divisions; e.g., monthly, quarterly, etc.) of the forecast must match the granularity of the system.
Corollary 7A: The granularity must match the frequency of review and decision-making.
It makes sense that you should review your projections whenever you review your actual operations. Most businesses are managed on a monthly basis. Therefore, their forecasts should be based on monthly numbers.
Corollary 7B: Use the same granularity throughout the forecast.
Changing the granularity of the forecasts often introduces errors. The longer the time period of the forecast, the more you have to rely on averages when reviewing your progress. See my article "Business Plan Mistakes--The Phantom Growth Rate" for a good example of this.
Rule 8: Build projections using the most basic assumptions as a foundation.
It is much easier to defend basic assumptions that are used to "roll up" into the larger forecasts. For example, if an investor were to ask you to reduce your payroll from $1,000,000 to $750,000, you may not be able to adequately explain why that would not work unless the payroll total was determined from the more basic assumptions of personnel counts and pay scales.
Corollary 8A: A forecast should show its basic assumptions.
More plans are rejected because they fail to show the basic assumptions than probably any other single reason.
Rule 9: An exception to a rule is valid if it can be defended.
As in any other system, every rule has its exception. Just make sure you can adequately defend the deviation from the accepted norm.
Rule 10: Every forecast must have at least two supporters.
"Two heads are better than one." When is comes to defending a number or assumption, it helps to have allies.
Corollary 10A: Even if a forecast is intended for your sole use, it helps to have it reviewed by someone else.
(c) Copyright 2006, Leonard M. Stillman Jr., All Rights Reserved.
Author: Len Stillman
Author Bio:
Len Stillman is a reputed author. Len likes to write articles about this subject.
South Florida Bankruptcy Lawyers
David I. Fuchs - Fort Lauderdale, Florida bankruptcy lawyers handling bankruptcy, personal injury and wrongful death cases.
All Faux Painting
Artist displays faux painting, fine art, decorative finishes, trompe l'oeil, and murals in gallery. Resources for artists, interior designers, decorators, home improvement.
Home Business Mastery for the Work at Home Business Owner
Home Business Mastery covers all you need to know about working from home. Paul Barrs is Australia's top home business trainer and you can now learn from hisdynamic approach and proven strategies.
Gallart - Painters Network
Gallart Network offers all painters a place where they can exhibit and sell their work. Be sure to check out the Message Board, Search Engine and Links pages.
Mind Power Subconscious mind power training
Achieve your goals by developing mind power and your subconscious mind. Site shows you how to power your mind and subconcious mind to achieve your goals and live the life you want. Includes training, support and more.
Positive Thinking Affirmations Training
Positive thinking, positive daily affirmations, positive thinking training. This Positive thinking, affirmations site shows you how positive thinking affirmations can create the positive life you want.
