This is also a classic example of management confusing forecasting, planning, and target-setting. In this case, no reasonable forecast would predict a 5% increase in sales. The 5% increase should have been seen for what it was—a stretch goal. Let’s look at one more example. A large regional distributor of food products to restaurants develops an elaborate annual profit plan. Hundreds of person-days go into the development of this plan, but it always starts with such comments as, “We need profits to increase next year by 6%. Let’s figure out how much sales have to be to achieve that goal.” Note that the term goal sneaked into that quotation. Where these executives should have started was to ask about market and environmental conditions facing the company during the planning horizon, and what levels of sales could be expected based on these conditions. The plan then becomes one of determining what marketing and sales efforts will be necessary to meet and exceed these projections to a level necessary to achieve the profit plan. The plan cannot drive the forecast; it has to be the other way around.
The sales forecasting level is the focal point in the corporate hierarchy where the forecast is needed. A corporate forecast, for instance, is a forecast of overall sales for the corporation. The sales forecasting time horizon generally coincides with the time frame of the plan for which it was developed. If, for instance, we continue the example just given, a corporate plan may be for the next two years and, thus, we need a sales forecast for that two-year time horizon. The sales forecasting time inter- val generally coincides with how often the plan is updated. If our two-year corpo- rate sales plan must be updated every three months (not an unusual scenario), we can say the level is corporate, the horizon is two years, and the interval is quarterly. The sales forecasting form is what needs to be forecast or planned. Some functions need to know what physical units are to be produced and shipped, whereas other functions need to know the dollar equivalents of these units, and still other func- tions need to plan based on total weight or volume. These constitute the forms a sales forecast (and a plan) can take.