People don’t like to be disappointed. The management time you will save, not to mention the improvement in your credibility you will achieve by beating your forecast, mean that it is worth taking the time to try to make this happen. Start by asking yourself the following questions:
- Who am I preparing this forecast for?
- Will they prefer me to come in ahead of or below my forecast?
- How can I present my forecast in a way that means that they are least likely to be disappointed?
Usually people prefer you to beat your forecast. Why? Because it makes their lives harder if you fail. Who am I talking about? Investors, lenders and the managers you report to are all probably going to be under pressure if you or your team under-perform.
So yes, I am suggesting that you low-ball your forecast as much as is reasonably possible for these audiences. This means that when the actuals come in these stakeholders are more likely to be pleasantly surprised. If they put pressure on you to increase your forecast (which they can and probably will), push back as much as you can. You will be doing them (and yourself) a favour.
But there are exceptions. Some stakeholders prefer you not to beat your forecast, or at least prefer that you do not beat it by much. These are usually the people who manage operational resources, like purchasing managers, suppliers or HR. They are not going to thank you if they end up having to find double the forecast levels of resources to meet actual sales. You may want to give them a different forecast to the first group of stakeholders, albeit one based on the same information.
But there are limits.
- Prospective investors may not invest if forecasts are too low.
- Consistent excessive low-balling will damage your credibility as well (albeit not as much as consistent under-performance).
- Purchasing managers and suppliers don’t like being left with excess stock.
- Spare capacity caused by hiring under-used staff is expensive.
So there is a balance to be struck. Judgments have to be made.
Repeated, effective communication over time with the people with the people who are relying on you to make a forecast will help build trust. When communicating, clarify assumptions and explain the reasons for actual variances. Developing a reputation as someone who comes in ahead of forecast and that people can trust will help you in your career.
Ultimately you will be judged by how much your key stakeholders trust you. To protect yourself, and to protect them, it is best not to disappoint.