the art of projections

[duncan drennan]

There is an excellent post on from Guy Kawasaki on projections and how to go about doing them. Here is one of the practical points that he makes...

Forecast from the bottom up. Figure out how many business development and sales meetings you can get per week--that is, four or five. Then multiply this number by the percentage that will be successful. Then add six months to close the deal. This forecasting method yields a much smaller number than the “conservative” method of assuming that you can get at least one percent market share.

Read the full blog post

[Dave A]

It's all goood. But here's a part I really like:

It seems like thirty minutes of every board meeting is spent explaining a new way to report revenues, costs, and metrics. You would think that you could pick a few numbers that indicate what’s happening at the startup and see the historical trends--but not if you change reporting methods every month. One innovative way to fix this might be to reduce the CEO’s and CFO’s stock options by ten percent every time they change the report.

My version: Identify the key measurables and stick to them. Rather face the harsh truth than fudge the numbers to "conjure" progress.

[Marq]

I don't know about this:-

It’s better to know that re-forecasting is necessary once a quarter than to pretend that “this time we got it right.”

Agree with Dave as well - changing the "rules" for board meeting BS doesn't work either. Although being a CFO most of my life and him threatening my potential income is a worry. (LOL)

If we have up to the minute/week/month/quarter (fill in your method here) changes all the time through forecasts - these become the budget and the overall company direction from strategic planning numbers to annual budgets and operational plans becomes a laugh.

Forecasting used to be an accounting function making a best guess idea of the year end potential (based on the years history) so that one (the accountant, CFO) could provide financial back up to any disasters or gains and warn the powers that be. It was not a re-budgeting tool to be used for line managers to take focus away from their original targets. We always left them hanging onto the numbers that they signed off at the begining of the year and let them sweat the problem if they were short - of course if they were well over they had to please explain as well and then along came the next year when no one believes their new numbers............ha ha. Having been out of the corporate game for the last six years my old school basics could have changed to such a degree that rich dad poor dad tactics is now the norm. A lot (majority?) of Kawasaki's stuff is good but I also wonder how much is placed in there just to create spin doctoring stuff so he can sell more books?

[duncan drennan]

A lot (majority?) of Kawasaki's stuff is good but I also wonder how much is placed in there just to create spin doctoring stuff so he can sell more books?

Maybe mixing up Guy Kawasaki (venture capitalist), with Robert Kiyosaki (of Rich Dad Poor Dad fame)?

[Marq]

Quite right Duncan - back to the drawing board for me. Cancel that thought.