Forecasts must not be seen by senior managers as a tool for questioning or reassessing performance targets. Nor must they be used to demand changes or improvements. What happened at Procter & Gamble in 1999 was a classic example of mixing forecasts with targets. After abandoning the budgeting process for 1998-1999, the company introduced “stretch” forecasts and asked their managers to set their goals at more ambitious levels than they would have done under the old budgeting system. So managers did just that. They estimated revenues and resource requirements at a higher level; this obviously pleased their bosses, but in the event caused great damage to the company’s reputation with suppliers, customers, and shareholders. The forecasts were far too optimistic, causing costs and inventories to inflate and ending in huge write-offs. The problem was that their forecasts were just that – forecast numbers unrelated to the reality of the business. Managers gave supervisors what they wanted to hear rather than what customers were telling them...1

If forecasts are used by senior managers to demand immediate action from frontline teams, then trust and confidence will rapidly evaporate. A senior manager at a large French company made this point: “Forecasts and targets must be independent if we want to obtain both relevant action plans and reliable forecasts allowing risks and opportunities to be identified and relevant corrective actions to be taken. They must not be produced for control purposes. There should be no wishful thinking. It is also important to be realistic. Forecasts should reflect the fact that some businesses are cyclical and thus cannot always grow, even if this is politically incorrect.”

Employees buy or sell the stocks and prices change to reflect the sentiment of company’s engineers, computer scientists and project managers – as well as its marketers, accountants, and even the receptionist. 2