Estimating Numbers is Hard When There are Many Variables and the Expectation of Everyone is For You to Identify ‘the Number’.
A single number that is correct. Impossible. Trying to forecast a single number is like being on a treacherous tightrope. You will fail to identify that single number because in a million numbers, guessing that one number will not happen. This article is about recognising that you don’t need to find that elusive correct number because there is an alternative way. The PRO tool.
Imagine this Scenario for Estimating Numbers
Many years ago I launched a business ‘canned oxygen’. Yes, oxygen in a can. Putting that aside, an investor wanted me to forecast the sales numbers when we launch. An impossible task because the market was emerging, with very few players, no comparison, and completely innovative. This meant that finding the sales number for year 1 was never going to happen.
A Simple Tool – The P.R.O. Tool
This tool enables you to move away from that elusive number and manage people’s expectations when estimating numbers. The P.R.O. tool stands for:
The Pessimistic Number
This is the number that considers the worst position, or black hat thinking, as it is known. To identify this number, consider the worst-case scenario. The variables involved in the numbers go the wrong way and the number is the lowest.
The Realistic Number
This is the number that considers the middle-ground position. The number above the pessimistic and below the optimistic. This might be the number that would be the one you normally have forecasted. Yet, it is now surrounded by two other numbers.
The Optimistic Number
This is the number that is the best. The highest. If all the variables ‘go your way’, then this is the number that you want to happen. This is the number that you hope for. The one where you plan to achieve something great.
Managing People’s Expectations
I shared with my investor 3 numbers. The pessimistic number, the realistic number, and the optimistic number. A range of 3 numbers from low to medium to high. By seeing a range of numbers I was not proposing a single number that I would be highly likely to to forecast incorrectly. Instead, a range of numbers with their accompanying state of mind, e.g. pessimistic, allowed me to offered many numbers as the forecast.
Adding your list variables to the scenarios enables others to then tweak the forecast accordingly. For example, if anumber of sales next year is based on a ‘good Summer’ of weather, then each number can be reduced because of a bad Summer of weather.
Use the P.R.O. Tool when Forecasting Numbers – Example
I forecast that in the first year we will sell:
Pessimistically: x’000 cans with assumptions of ABC.
Realistically: y’000 cans with assumptions of ABC.
Optimistically: z’000 cans with assumptions of ABC.