Overview
A consensus forecast combines cross-functional expertise with data-driven insights to create a unified view of future demand. While long-term forecasts focus on strategic factors such as revenue and market trends, short- and medium-term forecasts incorporate operational inputs like promotions, customer changes, and demand signals. Demand planning leads the process, with sales, marketing, finance, operations, and product teams contributing according to their roles.
Forecasts come in many shapes and sizes. They come in different buckets (daily, weekly, monthly, quarterly, annually), they come in different units of measure (currency, order lines, units, boxes, pallets), and they come from different sources (sales, marketing, supply chain, a slightly too drunk uncle at a birthday party). They can be data-driven, they can be a copy paste from last year, they can be based on gut-feelings, or worse: they can be based on hope.
Every shape of forecast has its advantages and disadvantages. However, there is one type of forecast which rules them all: the consensus forecast. The one forecast which has all the advantages and none of the bias.
In this blog, we’ll define what constitutes a consensus forecast, who you should involve, and most importantly: what should be included in your forecast and what should not.
What is a consensus forecast?
A consensus forecast is “the” forecast agreed upon by multiple departments and stakeholders.
Why “the” forecast? Because there is no universally agreed definition whether this is a dollarized forecast (e.g. revenue), a unit forecast, or at what level this forecast is created. That can depend on the context of the business, how you’re organised, and what’s important to reach your strategic goals.
A consensus forecast can be created at several levels:
- For the C-suite, a consensus forecast can be an annually updated revenue forecast used to support decisions around infrastructure investments and team expansion.
- For directors ,the consensus forecast can help them direct teams.
- For demand planning, it can be a unit-level forecast to deliver to supply planning.
A consensus forecast is always reviewed by not just multiple people, but by people from different departments.
Who can contribute to the consensus forecast?
Several departments should review or supply data to create the consensus forecast, their influence can differ based on the timeline of the consensus forecast. Key influencers are:
1. C-Suite
The C-suite should sign off on the created forecast. They are also providers of data on strategic level plans, which could be new locations being onboarded, category expansion plans or even mergers and acquisitions.
2. Product Management
Product or Category Management (or merchandisers) supply key data points about the assortment. They are in the best position to identify category-level trends, they know which items will be discontinued and what items will be introduced, and they’re the best to know about pricing trends among both suppliers and the sales markets. They can also advise on cannibalisation and halo effects.
3. Sales
Input from sales teams is crucial as they represent the voice of the customer. Together with product management, they know which products are popular, which customers are likely to be onboarded and which customer relationships may be at risk. These pieces of information are valuable for adjusting the forecasts where it matters.
One important note: sales teams are often biased towards a higher forecast thans than may be realistic. Their contribution should be limited to information that is significant in nature (e.g. a high impact on what you’ll sell). More on that later.
4. Marketing
The marketing plans for products have significant impact on how demand is shaped. Marketing teams should therefore give ample heads-up to planning teams about their marketing plans. In the long run, rough plans will do. But in the short- and medium-term, they need to contribute their actual promotional plans and other campaigns they are running.
5. Finance
Finance teams are a major driver behind company-wide revenue forecasts, they need it for their cash-flow planning to ensure the company can keep paying employees and vendors. They often create their own version of the forecast which incorporates organic growth, inflation and large-impact events such as mergers and acquisitions, or new location openings.
They don’t need a lot of detail for this, however their contribution to the consensus forecast is valuable. The financial forecast is a guideline to which every other forecast should be comparable. They don’t have to match dollar for dollar (or dollar for unit), but they should be directionally aligned and within an acceptable margin of each other.
6. Operations
The role of operations in consensus forecasting is limited. They are more concerned about pointing out constraints, but don’t have valuable information that should be incorporated in the forecast.
They should know the forecast once it’s there, and it should be translated to units of measure relevant to them (e.g. how much order lines are we shipping next month), and they should judge feasibility, however their input on forecasts should be negligible.
7. Demand planning
Supply chain planning, and specifically demand planning, are the owners and shepherds of the consensus forecast. Their contribution comes down to data-driven demand plans (e.g. a statistical or ML generated forecast) and ensure all enrichments provided by other departments are incorporated.
What should be included in your consensus forecast?
When building a consensus forecast, it’s important to design the process well and include the right stakeholders at the right time. This can differ based on the timeline you’re forecasting for. You also want to establish guidelines to ensure it’s based on the correct presumptions.
“Presumptions” is a key word here.
Unlike a fully statistical (or data-driven) forecast, the consensus forecast incorporates presumptions. Presumptions, in the context of forecasting, are knowledge of events that could happen and are impactful to demand when they do happen.
Additionally, these are bets on events that can happen but are not yet certain, the payoff of these bets need to outstrip the risk associated with increasing the forecast, and thus inventory.
Presumptions are different to assumptions, as a certain degree of evidence is required to warrant incorporation in the forecast. Assumptions should have no place in a consensus forecast, whereas presumptions that have a large enough payoff should be.
Presumptions with reasonable evidence and a large enough pay-off look different in the short- and medium-term vs. the long-term. You typically want to forecast more detail the closer you are to the forecast materialising. We always like to incorporate a few rules of thumb:
Long-term consensus forecast
Create an annual or quarterly plan that includes only large impactful events such as new location openings, new category introductions, M&A or other forms of large-scale business expansion. On top of that, include macro-economic trends such as inflation and population growth.
This exercise shouldn’t involve every department. C-suite and finance are the most important stakeholders here. The long-term forecast should be based on total revenue, which includes historical promotions and other impactful events as one number. Details are not important.
Short- and Medium-term consensus forecast
In the short- and medium-term, what should be included are promotional plans, new customers that must be onboarded, industry and market trends, but also events that can affect demand negatively, such as customers lost and products losing traction.
If you’re in an industry selling through e-commerce platforms, you should incorporate data about search page results, clicks, etc. from marketing teams into your consensus forecast. The forecast should be driven as the (sales) unit level and can be dollarised to compare to the long-term consensus forecast as a sanity check. Sales, marketing and supply chain are the most important stakeholders of this forecast, and it should be updated weekly or monthly.
Final thoughts
No forecast is perfect. Every forecasting method contains some degree of uncertainty, bias or limitation. The strength of the consensus forecast lies in its ability to combine data-driven insights with business knowledge from across the organisation.
When supported by the right stakeholders, focused on evidence-based presumptions and aligned to the appropriate planning horizon, a consensus forecast creates a single version of the truth that everyone can work towards.
And that is what makes it the most valuable forecast of all.
