How to Measure the Impact of a Forecast Error on an Enterprise

HOW TO MEASURE THE IMPACT OF A FORECAST ERROR ON AN ENTERPRISE? By Kenneth B. Kahn Shows step by step how to measure the cost of an error … by cutting down the forecast error by a few percentage points may mean millions of dollars in savings a year … the senior management will be much more supportive to the forecasting function if it understands how much forecasting error is costing to the company. While a number of managers can quote their company’s forecast accuracy, most cannot convey the financial value of accurate sales forecasting within their company. These managers would nonetheless agree that sales forecasting is a critical effort underlying almost every element of the business, including such areas as financial planning, inventory control, production planning, distribution planning, market planning, and customer management areas, and thus, should have a financial impact. Given the current economic environment towards cost control and profitability, managers overseeing proficient forecasting processes have taken a keen interest in moving beyond just recognizing that a financial impact should exist and are now focused on clearly delineating a numerical linkage ...