Integrate forecasts into your plans
Uncertain customer demand, raw material prices, and labor rates flow into financial planning and operational decision making for improved enterprise performance.
The Problem
The consequences of incorrectly projecting profit by using an average to represent uncertain customer demand and manufacturing costs can be fatal.
“The Strong Form of the Flaw of Averages states that plans based on average assumptions are wrong on average.” – Dr. Sam Savage, author Flaw of Averages
If the point estimate forecasts are incorrect the company will incur unplanned inventory carrying costs, strained relations with its trading partners and heads may roll. As one of our clients tells the story, “Three Vice Presidents later we started using ranges to represent uncertainty.”
Data about past business performance exists. Expert forecasts exist. Why not use this information to embrace uncertainty and let decision makers weigh the risks and rewards before making a high value low data decisions?
The Solution
By assigning uncertainties a range of values and a corresponding likelihood of occurring (a probability distribution), scenarios of possible future performance are captured. A probability management platform tags, catalogs, and organizes the scenarios within the distributions. It’s a bit like how a database manages historical transactions. But since we are dealing with uncertain future values how an uncertainty is impacted by changes in other uncertainties and time needs to be considered. There’s some serious coordination happening and it’s managed by the platform.
Once uncertain numbers are in the probability management platform they may be consistently used in planning spreadsheets, predictive models, interactive dashboards, or input into enterprise applications. The outputs of the models and apps may be added together and consolidated.
Value Proposition
A probability management platform is key ingredient in curing the flaw of averages. But where do the distributions come from? We help you with that too. Using our expert network of forecasters and connectors to common sources, generating scenarios can be as simply as clicking on a URL. We’ll help you understand how to apply the distributions to your business models and if needed how to interpret the results. You gain actionable information that is consistent and auditable reducing the political maneuvering that seems to be inherent in the planning process. Set and reach your profit objectives by embracing uncertainty.
