Plan vs Forecast KPI – Subtle Difference

As the famous quote goes “If you cannot measure it, you cannot improve it“, all organizations designate a team in-charge of creating and setting benchmarks periodically in an organization. Planning and Forecasting activities play central role in developing the measures that act as benchmark for tracking performance. The terms might indicate overlap in functionality, but they are distinct in usage for Reporting and Analytics needs.

A plan is typically driven by different business teams and created before the start of calendar/fiscal year. Once finalized, a plan sets in motion events and decisions that will change the operational characteristic of the organization. A forecast, on other hand is used internally to evaluate the plan versus actual values periodically and provide the decision makers direction of the organization(s) initiatives.

Planning values are typically kept unchanged throughout the year and are set in stone whereas forecast values are changed on monthly basis. In order to maintain data fidelity, every time forecast values are revised, a copy is made and saved with a new version identifier.

At the beginning of a year, the planning and forecasting team will have one version of each data set and over the duration of a reporting year, multiple forecasts will be created for evaluation. Forecasting team employs all analytics techniques based on industry and data type and also engage in substituting actual values in order to improve accuracy of forecast models. Calculating the variance is a simple mathematical difference between actual and the benchmark values.

It is not uncommon to view reports/dashboards that show multiple comparisons with this type of analysis scenario. Although Time context plays critical role in managing the various plans(s) and forecast(s), the planning and forecasting functions are always performed at the lowest levels of granularity i.e. a combination of e.g. Product Line/Brand, Location, Customer Segment etc.