You are an independent management consultant and have been approached by the CEO

Question

You are an independent management consultant and have been approached by the CEO of Rador Ltd, Ms Benin. Rador Ltd has always prepared their annual sales forecast using estimates obtained from their sales director, Mr Poole. During the previous year, Ms Nokhuna, the HR director, had brought to the attention of the Board of Directors that a feeling of discontent had been observed from the sales staff. The sales staff had voiced their concern in a memorandum to Ms Nokhuna, of which the following excerpt was shown to you:

“The sales targets just move up every year. This while we are operating in a recession! Top management has no idea what we are dealing with. We find these ever upward moving targets unrealistic and demotivating.”

REQUIRED

Advise Ms Benin as to ways that could be employed to ensure that a more balanced sales forecast is developed. (5 Marks)

Explanation / Answer

Ms. Benin should act in following ways that can be employed for a balanced sales forecast.

1. Prevent the overestimation or cyclical impact from the sales forecast by linking it with the macroeconomic indicators such as GDP growth rate, income per capita growth rate and overall concerned industry growth rate. It can be done by using the past data and extrapolating it in the future.

2. Prevent the seasonality effect by breaking up the yearly sales forecast into a quarterly sales forecast and considering the seasonal factors such as weather, festivals and other important events. It will reduce the scope of error in forecasting and forecast will be more aligned.

3. Take considerations of the qualitative forecasting method also. For example, Delphi method can be used to take the expert's opinion regarding the sales forecast in the wake of current economic conditions. It will also add credibility to the sales forecast.

4. Sometimes, the existing application used for the forecast, are unable to capture the recent development and rely heavily on the past trends. So, recent developments are overlooked. Hence, the forecasting methods should be recalibrated in terms of the assumptions, factors and weights.

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