12 Managing Forecasts
Forecasting future sales is a method of providing predictions of future revenue for specific time periods. Management uses sales forecast data to set production schedules and volumes, to determine resource requirements, and to report financial guidance to investors.
Summary of Features
The key features of sales forecasting include the following:
- You forecast sales by territory. The forecasts roll up following the territory hierarchy. Changes to the active territory hierarchy are periodically synchronized with the forecast hierarchy up until a freeze date. After the territory freeze date, salespeople can make changes to their forecasts.
- The sales administrator predefines the schedule of forecast periods.
- Salespeople finalize their territory forecasts for the current time and submit them to the owners of parent territories.Owners of higher-level territories can view, change, and adjust forecasts at lower levels in their hierarchy. Adjustments are visible up the territory hierarchy, but are not visible down the territory hierarchy to subordinates.
- The forecast for a period is automatically generated from eligible opportunity revenue items scheduled to close within the period. Forecasts are refreshed from the pipeline revenue in real time. Opportunities and forecast items continue to synchronize until the salesperson submits forecast items for final approval.
- The sales administrator sets the criteria that determine whether a revenue item is eligible to be automatically included in a forecast.
- The sales administrator provides the option for salespeople to override the established criteria and manually include or exclude a revenue item from the forecast.
- You can record nonrevenue forecasts on opportunity revenue transactions in addition to the revenue sales credit split. Nonrevenue forecasts allow nonprimary salespeople to forecast sales expectations for all nonrevenue sales credits.
- You can view current, future, and past forecasts. The current forecast is open for editing at certain times and then frozen.
- You can adjust forecasts. A revenue-item adjustment is an upward or downward adjustment to a specific forecast item. A summary adjustment is an upward or downward adjustment to the overall territory forecast that isn't associated with any specific opportunity.
- You can use predefined graphs to analyze forecasts, or add your own graphs.
A sales forecast for a territory encompasses a time period and sales opportunities that meet defined criteria. Salespeople submit their forecasts to their managers, who make any needed changes and in turn submit the forecasts to their managers.
The following figure shows the components for a territory forecast. Revenue items from opportunities form the unadjusted forecast. If the revenue item has multiple sales credits, then the revenue item is visible across multiple forecasts. Salespeople add adjustments to the forecast. Adjustments can be applied at a summary or item level.
The forecast territory must be correctly assigned for the revenue item to appear in the correct forecast.
A revenue item from an opportunity must have a designated close date that falls within the forecast period to be included in the forecast.
The criteria for the revenue item must match the criteria set for the forecast. For example, if the forecast criteria specify a win probability of greater than 75 percent, then a revenue item with a win probability of 80 percent is added to the forecast.
If the ability to override is enabled, then a salesperson can include a revenue item in the forecast even though it does not match the criteria, or exclude a revenue item that matches the criteria.
It is possible for managers to pull in forecast items as adjustments that do not match the close date or criteria and override conditions.
The unadjusted forecast is the total of all revenue items that match the forecast criteria or that are included by overrides. All revenue items must have close dates within the forecast period.
Salespeople can add a positive or negative adjustment on top of the unadjusted forecast to form an adjusted forecast.
Managers and nonrevenue credit recipients can pull in forecast items as adjustments that do not match the close date or criteria and override conditions. Also, managers and nonrevenue credit recipients can drop items as adjustments, regardless of close date or match and override conditions.
An adjustment is a positive or negative number that adjusts your own or a subordinate's unadjusted forecast up or down.
The adjusted best case forecast is the sum of:
- The best case for all forecasted items
- Item-level adjustments for the best case
- Any summary level adjustment to best case
The adjusted worst case forecast is the sum of:
- The worst case values for all forecasted items
- Item-level adjustments for worst case
- Any summary level adjustment to worst case
The estimated adjustment metric is the sum of the difference between estimated revenue and revenue for all transactions in the forecast period. Sales Predictor uses statistical analysis to provide the estimated revenue amounts based on historical sales for the product associated to the revenue item.
You enter summary level adjustments by selecting Adjust from the Actions menu.
If you forecast by product, by product and channel, or by product, channel and time, then your administrator enables the Forecast Summary tab that provides different views for making detailed adjustments, and the adjust action is no longer available.
In the Forecast Summary tab, whenever a parent product has children, an additional child is added called Unallocated. A deal that is for the parent itself appears as unallocated until you can determine to which child to move the deal. When you make an adjustment to the parent the adjustment amount appears in the Unallocated child row until you distribute it among the children.
You can manually alter the children until the unallocated amount reaches zero. If you over-allocate without reaching zero, then the unallocated amount can become negative.
Use the Distribute to Children action to divide the amount up proportionately amongst the children based on the percentage that each child makes up the parent adjusted forecast. If all children are zero, then the amount is divided equally.
Recalculate from Children changes the selected row so that the value is equal to the sum of the value for the children, and the unallocated amount is zero.
Forecasting by Product and Time
Start your forecast adjustments at the product level and if required then spread your adjustments across product and time. When you start at the summary level, by product, then your adjustments appear as unallocated amounts for time as well as for lower levels of the product hierarchy. You then need to divide the unallocated amounts down the product hierarchy and among the dimensions for time.
You can choose to forecast only by product, or by product and time.
You can submit your forecast after the territory freeze date and before the forecast due date. Make all of your item and summary forecast adjustments. You can submit your child territory forecasts on behalf of your subordinates and then make adjustments to your forecast before submitting.
You can't make adjustments or update your forecast after you submit it. Your manager can make adjustments to your forecast only after your submission. You can use the Withdraw option in the Actions menu to withdraw your submission, unless your manager changed or adjusted your forecast or submitted the manager's forecast. If your manager rejects your forecast, you can make further changes to the rejected forecast and then resubmit it.
When you view the territory forecast by product in the Forecast Summary tab, you can select to filter by adjusted forecast. The table then displays products within the selected territory definition that have either an adjusted forecast value or an adjustment value that is not zero.
The territory is hidden in the Forecasting Overview page, but is available on the Edit Forecast page. The owner of the parent territory can submit the forecast for the child territory. If the child territory owner also owns the parent territory, then the territory owner can edit forecast items, add and remove forecast items as adjustments, and adjust the territory forecast.
The likelihood to buy product metric reflects the percentage of confidence that a deal will close with the specified revenue on the specified close date. Sales prediction uses statistical analysis to provide the likelihood to buy product based on historical sales for the product associated to the revenue item.
Estimated revenue is the potential revenue from the revenue line item. Sales prediction uses statistical analysis to provide the estimated revenue amounts based on historical sales and other metrics for the product associated to the revenue item.
The pipeline metric is the total revenue amount of all revenue line items where the Status category is Open, the primary territory is the target territory, and the close date lies in the forecast period. Unforecasted pipeline is the total revenue amount of all revenue line items without a corresponding forecast item, where the status category is Open, the primary territory is the target territory, and the close date lies in the forecast period.
The expected forecast metric is the sum of all weighted revenue values for all forecast items in the forecast period. Weighted revenue is the revenue amount multiplied by the probability of the deal closing.
The quota metric is the revenue target associated with the expected performance of a salesperson's territory for a given forecast period.
The closed revenue metric is actual revenue for the target territory that was closed during the forecast period.
The best case forecast metric is the sum of all best case revenue values for all forecast items in the forecast period. You can enter the best case revenue amount when you change the revenue line item details in an opportunity.
The worst case forecast metric is the sum of all worst case revenue values for all forecast items in the forecast period. You can enter the worst case revenue amount when you change the revenue line item details in an opportunity.
The unallocated amount for a parent is added to the amounts for all the children so that the unallocated is zero.
The unallocated amount is divided up proportionately amongst the children based on the percentage each child makes up the parent adjusted forecast. If all children are zero, then the amount is divided equally.
The unallocated amount at the child level must be zero for adjustments to be added directly to the parent total. Child level adjustments are added to or subtracted from the unallocated amount until unallocated is exactly zero.