How to improve your forecast accuracy - with psychological safety
Image by Pop & Zebra via UnsplashLet’s assume you manage a revenue forecast based on the sales team’s inputs. You just missed the forecast for the quarter.
And it wasn’t even close.
Of course, you’d like to understand what happened, so you can see if there are any risks for the remainder of the year.
You ask your business partner in sales why he thinks the forecast was off by that much.
And...
No response.
You follow-up. Twice.
Finally, you get the answer that they looked at everything it could have been but couldn’t figure it out. As a result, you are left guessing whether you need to call down your forecast for the next quarter.
Why is it that you aren’t getting any explanation on the miss?
It’s likely due to a lack of psychological safety.
Harvard Business School Professor Amy Edmondson defines psychological safety as:
“[...] a belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes. [...] It’s a climate characterized by interpersonal trust and mutual respect.”
Even if your sales business partners don’t get punished for missing the forecast, psychological safety may be low enough for them to decide it’s better not to admit their mistake.
So, what can you do to address the issue?
➣ Focus on the process, not on people.
Don’t call out who was responsible for a miss. Instead, understand the root cause and think about ways to prevent it in the future by making tweaks to how you build the forecast.
➣ Celebrate mistakes as opportunities to learn.
Saying it’s ok to make mistakes is not enough. You need to take it a step further and show that sharing mistakes is a good thing. For example, you can reward the person for improving forecast accuracy in the next quarter.
➣ Publicly admit your own mistakes.
Show that you have a growth mindset: you believe that skills and abilities aren’t fixed. So, making a mistake isn’t a sign of weakness. It’s an expected part of the learning process.
To manage your expectations, you can’t raise psychological safety overnight. But if you stick with it, the effects compound over time, and you will end up with massive improvements.
If you’d like to learn more about FP&A, I offer help in three ways:
1️⃣ Subscribe to my free newsletter “FP&A Tuesday” here.
2️⃣ Listen to 75 bite-sized mini lessons and get FP&A advice on the go.
3️⃣ Join my live online course FP&A Bootcamp to master FP&A in two weeks.
