An Introduction to Cerado Analysis
© 2004 Cerado, Inc. All Rights Reserved.
Research Sponsor – Cerado, Inc.
The vision of Cerado, Inc. is very simple: to be the leading provider of services that enable a sales force to be more successful. Cerado accomplishes this by using advanced technology to provide useful,non-intrusive services to executives and sales professionals that enable them to communicate more effectively, compete more effectively, and close business more effectively.
This whitepaper describes a novel process for analyzing and highlighting the one of the most pressing problems facing the sales force – identifying significant issues in the sales forecast. The Cerado Analysis processis a simple, yet powerful, process for visually identifying the most significant opportunity areas for sales executives. Since this method illustrates a new way of examining information that is already commonly shared by the sales force (forecast and actual close information for deals in the pipeline), it also does not put any increased administrative burden on the field sales force.
WhyForecast vs. Actual Analysis Is Important
Accurate sales forecasting is a critical success factor for worldclass organizations. Yet, inaccurate forecasts take their toll in many organizations, and hinder these organizations in a number of key ways. Most importantly, inaccurate sales forecasts make it nearly impossible to create predictable, credible financial projections for the firm. Especially forpublic companies, inaccurate sales forecasts can have a significant impact on share price and investor confidence in the organization. In particular, if the valuation of an organization is implicitly or explicitly based on future revenue projections, inaccurate sales forecasts will cause
the firm to have a depressed valuation in the marketplace, since investors are unsure of the actualprospects of the firm. Secondly, inaccurate forecasting can have a significant, negative effect on the operational effectiveness of the organization. Since many organizations (especially manufacturing organizations) use sales forecasts to drive purchasing and supply chain management, inaccurate or inconsistent forecasts will negatively affect the organization from an operational standpoint. Is yourforecast overly optimistic? If so, purchasing may over-purchase and manufacturing may over-manufacture, tying up muchneeded cash and building up unneeded inventories. On the other hand, is sales bringing in great deals that were never forecast? If so, then there may be a looming customer satisfaction problem, since manufacturing may not be able to produce the needed products in an acceptable timeframe,based on raw materials availability and production lead time. If this is the case, an organization runs the risk of having customers who have signed orders, but are unable to receive the things they have ordered since their component parts were never ordered or the finished goods were never assembled. If the orders were never formally forecast, how can purchasing or manufacturing know how to actappropriately? In services organizations, this same issue will almost certainly result in customer satisfaction problems, as the correct resources may not be available to staff a sold project appropriately.
Forecasting Methods and Common Problems
There are two primary forecasting methods: “top-down” and “bottom up.” Top-down forecasts base their projections on historical information, and applya trend function to that historical value. So, in a top-down forecast, if sales were 100 units last quarter, and growth is expected to be 20% per quarter, this quarter’s forecast would be 120 units. Top down analysis works most effectively in more well-defined markets with identifiable traits that are predictive of purchasing behavior. On the other hand, many details are lost in top down...