Sales forecasting offers many benefits, from better infrastructure planning to cash flow management, but not all forecasts are created equal. Here are our best tips for making the most out of your sales forecast.
1) Aim for accuracy. This may seem obvious, but it needs to be said. Forecasters will often pad their forecasts “just to be safe,” especially when planning for infrastructure. This may seem harmless, but it can lead to overbuilding and overspending.
2) Include relevant trends. This tip will help you achieve greater accuracy with your forecast. Look at trends that have impacted your sales over the preceding years or even decades. Decide which ones might continue, and then build those into your forecast. For example, Wisconsin has experienced a gradual increase in rainfall due to the changing climate, resulting in less outdoor water use. To account for this trend, you’ll want to adjust your summer water forecast.
3) Test the forecast model. Whether you’ve designed it yourself or had someone else build it for you, kick the tires on the forecast model. Try inputting different numbers for variables like per-capita demand and see if the results are intuitive. For example, if you lower per-capita demand, you should see a drop in operating revenue as well as some operations and maintenance expenses. If you don’t, then the model might need more work before it’s ready.
4) Do sensitivity analysis and scenario planning. Change the inputs from what you expect to happen to what “might possibly” happen (good and bad!). Estimate how likely these good and bad outcomes are, and then invest a little time into thinking of contingency plans just in case one of these outcomes turns into reality.
5) Update the forecast model. When you have new information, put it in your forecast model. For instance, once you have actuals from the prior year, include those in the model. You can then do trend analysis and make your model more accurate.
Use these tips to strengthen your forecasting and reap the benefits of better planning and readiness for whatever comes your way.
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To learn more about what forecasting can do for your utility, or for help with the forecasting process, please contact an expert at R/M today.
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