I'll See Your "3 Dangerous Myths" And Raise You One Dumb Idea

I saw this "advice" to small businesses courtesy of US News:

Sales forecasting: It's hard enough to get it right without all the ways we get it wrong. It was on my mind over the long holiday weekend, and in this case, it wasn't a particularly cheery back-of-the-mind thought. My company's recent sales reflect the economic downturn.

Not cheery, perhaps, but now more than ever, managing your sales forecast is really important and very much misunderstood. Most people fear forecasting. They think some expert should do it. Visions of econometric models and weighted moving averages dance, devilishly, in their heads.

So why do people hate forecasting? It's mostly because of myths and misunderstandings. Such as, among others, these three:

Myth 1: It's About Accurate Forecasting

Not really. We're all just human, so we don't predict the future all that well....

Myth 2: It's for Experts

Again, not really. In the real world, forecasting is a matter of good educated guessing in rows and columns on a spreadsheet. Real people, the ones who run the business, think about what they can realistically expect....

Myth 3: You Can Manage Without it

Managing a company without sales forecasting—the forecast, the actual results, and the management that follows—is about as smart as driving a car without a steering wheel, or maybe I should say with your windshield covered in black paint.

This prompted a response by yours truly:

Speaking as someone who ran a small business for a number of years, a lot of this strikes me as nonsense. I mean, I'm sure this is the way folks who teach business in universities want the world to work, but it is as far from the real world as I can imagine.

1. You admit up front that the "forecasts" have little to do with what actually happens. This is not a "so what" moment. Producing these "forecasts" take time and energy away from other things one could be doing. In any small business there are never enough hours in the day to do what needs to be done. Even the most cursory of a cost/benefit analysis would tell you to dump the attempts at "forecasting" as being, at best, non-productive, and, at worst, counter-productive.

2. I agree with the previous commentator; flexibility is the key. Forecasts can have the unintended effect of narrowing our options based upon what we believed would happen, as opposed to what actually happens. Yes, the author says you have to keep evaluating your situation, but how does a "forecast" help you do that? One could just as easily (or more easily) rely upon sales history (for example) to give one a comparison with present numbers.

3. It is a good rule of thumb to always be wary of what my father used to call "Onageristic Estimates." (An onager is the name of a wild ass....so an Onageristic Estimate is a "wild ass guess.") Such guesses were only employed when other methods/answers were, A) unavailable, or B) too costly (in one way or another.) You believed in an Onageristic Estimate at your own peril. The thought of an inventory manager basing her buying upon such a number should send shivers of horror through the mind of any small business owner.

That just about covers it.