How To Use Forecasts In A Practical Way

Running Project Forecasts

Let’s consider a business unit which struggles with forecasts. Small projects last 6 to 8 months while the large projects finish in roughly 15 months. All project managers forecast costs each month just before a detailed project financial review. Such reviews are costly because they need at least 3 managers to go over the project status. Despite these reviews, the unit suffers from negative cash flows. The business unit manager looks for answers but he doesn’t see a straight solution. He talks to his team and asks them to find the best answers. While he waits, the unit loses margins. How do you fix it?


The Answer Lies In The Right Questions

 So why do project managers need to forecast cost? What if the forecasts aren’t accurate? What is the best forecast frequency? What affects forecasts? Let’s try to answer these questions and see if they lead us to our answers – better cash flow. First, unless you forecast cost, there is no way to know if you’ll have a positive difference between revenues and costs – which is your cash flow. One way is to look at history. Use the pattern for spending from a successful project. But it’s backward-looking. For you to estimate correctly, you’ll have to look at the finish line. How much work remains? Can work center managers give you accurate labor estimates for remaining work? Such answers take you in the right direction. Another important step is looking at how fast you’re collecting on the work done. Are you creating favorable payment terms for project change orders? Next, the frequency of forecasts depends on the size and project length. For aggressive short-term projects, you need to forecast every 2 to 3 weeks because the project changes more quickly. For longer projects, the frequency may be slightly lower. Scale the projects by size and length so you forecast them fittingly.

 What We Learn

You don’t need to be a wizard for forecasting costs. You just need to judge how you plan to spend so you finish the work according to the time lines. Some ERP programs even allow you to use various mathematical models such as bathtub or half bathtub curves. Whatever the method, you need to look forward and see what helps your project managers finish project using the right methods and tools.

How Businesses Reach Their Goals

The business unit manager has to invest in training his project managers so they know how to forecast. It helps you see what it takes to finish chunks of work within your budget. It helps you improve your margins. It helps the business unit improve cash flows and keep moving forward towards the finish line.

Written by Suresh Iyengar, P.E., President, Business Unit Execution LLC––“Explosive Business Coaching Houston Results For Small Business”. Want even faster results? Are you ready to learn? Call 281.410.5375 and speak to your Profitability Coach Houston today!

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