30 Mar 2023

Forecasting Vs Planning

Forecasting vs Planning

I recently read a post that distinguished between the two. Such a distinction seems academic at best for many reasons…

I know several of you think that sales as a function should not be involved in demand planning. However, it is the sales function that re-writes the fate of your demand forecasts, through their own behaviors and planning.

An ideal classification would have been the contrast between short-term planning and long-term planning, and not the contrast between Forecasting and Planning.

That said, I believe that all forecasting should include two things:

•    First, a mathematical exercise that tries to predict what could happen.

•    Secondly, Information generation from the stakeholders which, includes sales, marketing, customers, market research and business partners. These are people who could potentially affect the forecast through their organizational actions and behaviors.

In the Short-term horizon forecasting could also involve the constraints a company would have in terms of what can be supplied. This is especially crucial for financial planning and analysis.

It would be easier to keep in mind the following when thinking about the concept of Forecasting VS Planning.

Demand Planning = Unconstrained forecasts + input from the market facing stakeholders on what they are “planning” to influence.  Such influence could be on either the customer or the market itself.

Financial Planning = Demand Planning + Constraints that will affect what a company can deliver.

Long-term Planning = More planning with a tilt towards the normative. It is not about what will happen, but more about what could happen or what we would want to happen.

Let us expand on these terms a little more.

Demand planning has a near to mid-term horizon. It relies on what could happen based on what has happened in the past.
Demand Planning as a discipline is the art and science of planning customer demand to provide visibility into the future for better corporate planning and supply chain execution. Demand Planning starts with a solid statistical forecast and adds intelligence through a consensus process. The process model for implementing Demand Planning encompasses essentially nine steps. Read about the Demand Planning Process Model in our consulting pages.

Financial Planning is a process with many layers: Investigate and document current financial circumstances of the business.
•    Assess and discuss short to long-term monetary goals.
•    Discuss strategies to achieve these goals.
•    Establish and plan for fundamental needs such as risks, income, spending and debt reduction.

Financial planning can also ensure that you keep track of the progress for years to come by always completing thorough checks and gathering information from various accounts.

FP&A is a key process that is designed to help organizations accurately plan, forecast and budget to support major business decisions. This is done by way of analytics. Used to recognize key trends to predict outcomes for the business and its financial wealth.

Long-term Planning is essentially a comprehensive plan for the business that defines goals for the future. During this process, key employees or stakeholders of the company will discuss and document a long-term strategy to complete and achieving goals, to meet the objectives of the company.

This process is the key driver of the annual budgeting process. And is very critical for every company, whether big or small. In fact, long-term forecasting is essential for companies that have longer product development cycles, as it provides the inputs for capacity planning and other long-term expansion initiatives.

Because of this, long-term forecasts can be more inaccurate, as there are more dynamic variables and error processes at work in establishing certain conditions expected to triumph in the future.

It is then better to subject the process to a what-if analysis to understand the robustness for the actual forecast. Which is why Valtitude has developed a unique yet defined methodology to develop long-term forecasting for any business, by ensuring that The Business plan or Annual Budget is documented the right way. 

Here is a broad guideline of process parameters to consider in long-term planning:

Capacity and other bottlenecks – Not enough capacity to meet demand for a product or service.

Organizational consensus – A group decision-making process, in which employees decide on a proposal with the aim of acceptance by all.

Revisions to spend and volumes – Making changes or revisiting previous budget.  This is an iterative based on volume projections and spend changes that depend on the volume projections.

Management buy-in – Management blessing is needed for the long-term plan to be executed.  Conversely, management needs to work on building consensus for top-down targets.

Development of a Sales and Marketing plan – A plan for reaching, engaging, and converting prospects into customers. This will feed the topline into the long-term plan.

Calendar Monthly Forecast – The long-term plan needs to be broken down into manageable parts, with details both in monthly and structural details. 

Strategic analysis of external factors – Knowing which factors from the outside can be risky or affect the company, such as economic, political, and competitive. This type of risk analysis can result in upside potential and downside risk to the plan. 

Operating Budget – This will be necessary to prepare a complete profit plan. This involves forecasting the manufacturing costs, administrative costs, and overheads.  Typically, the operations function will work on standard setting to estimate such costs to feed the Annual operating plan.  

For more information on the above, visit


Leave a Reply