When a sale comes in ahead of expectation or when revenue and profit exceed plan, a leader may refer to extra revenue or extra profit which runs the risk of sending the wrong signal to employees. Continue reading “Extra Revenue” vs. “More Revenue” … Read all about it!
Revenue Forecasts asserts that a certain amount of revenue will be earned in a certain period of time with a certain probability that the actual revenue earned in the period will be within a certain tolerance of the forecast. For example, management may forecast that there is a 90% chance of actual revenue being not more than 10% less than a forecasted amount.
Generally speaking, the percent probability of revenue from a source is assigned by management based on their judgement in light of their collective past experience with similar revenue generating opportunities in similar circumstances.
Some managers set forecasts equal Expected Value; that is, their revenue forecast equals the sum of potential revenue generating opportunities each multiplied by an assigned probability of occurring. There are several potential problems with this approach that should be considered carefully before proceeding:
- Summing expected values allows fractional results when there may actually be little to no chance of fractional results. For example, an opportunity to generate revenue of $100,000 with a 50% probability of occuring would contribute $50,000 to a forecast computed as a weighted sum even though the actual result is more likely to either be $0 or $100,000. Continue reading How to increase the accuracy of revenue forecasts.
Leaders who are in control of operations compare their organization’s actual performance results to:
- Past results to know whether their organization is trending up, down or sideways.
- The results other organizations that are doing things similar to theirs achieve in order to know how well they are doing relative to industry benchmarks, especially relative to those who do best what they are doing. Continue reading How to get, and stay, in control of operations.