Forecasting Process for Worldwide Sales Provides Transparency, Consistency, and Efficiency
Business Case Study
Published: July 2011
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Microsoft Information Technology (MSIT) manages the applications and systems that support more than 2,000 sales managers. This document provides an overview of a global forecasting solution, Enterprise Business Management System (EBMS), developed by MSIT and Microsoft Sales. EBMS delivers value to sales headquarters and sales management by standardizing pipeline-based sales forecasting worldwide.
Business Case Study, 832 KB, Microsoft Word file
Products & Technologies
Prior to EBMS, many regions financed and managed their own forecasting applications, all of which were very similar. They were not always documented; knowledge of the application would be with one or two individuals, which was an ongoing area of concern.
Deployment of EBMS focused on three major areas:
Forecasting at Microsoft
A forecast is a periodic re-evaluation and commitment of revenue, expenses, and resources through the end of the fiscal year. The forecast is part of the Monthly Business Updates (Rhythm of the Business) discussions, helps with investment decisions and cost management, and provides input for target and quota setting.
There are three CFO forecast cycles that happen quarterly—including a full profit and loss (P&L) from the field, business groups (BGs), and Corporate organizations—each year in the months of October, January, and April. Sales Marketing and Service Group (SMSG) completes an additional revenue forecast in December for midyear reviews. In addition to these forecast cycles, the subsidiaries perform monthly and weekly forecasts to help create the CFO forecast for each quarter.
Challenges with Forecasting
Discrepancies in taxonomy, process, and tools between sub-regions resulted in inconsistent data.
Accurately aggregating forecast data was very time consuming, resulting in excessive delay for area and global forecasts.
Forecasts that were not based on an opportunity pipeline, in which predictions and historical data played a major role, did not provide managers with current information on business changes. Also the data model lacked reporting flexibility due to non-availability of granular data because the forecasts depended more on parameters other than an opportunity pipeline.
Forecast processes varied from subsidiary to subsidiary, having evolved to meet local needs without unified global systems or methodology. This siloed approach allowed flexibility to adapt local tools and processes to local needs but imposed severe limitations and costs on the business, ranging from timeliness and validity of aggregated forecast data to operating expense and business agility.
Subsidiaries developed shadow processes to manage their businesses. The shadow processes restricted visibility into the forecasting that was happening in each subsidiary.
There was large variance in alignment between pipeline deal reviews and forecast methodology, making the forecast less relevant against the pipeline.
- Forecasting Rhythm
No single tool supported all the forecasting cycles (quarterly, monthly, and weekly) in one place.
To address the highlighted challenges, the Microsoft Sales Business Unit defined the following goals:
- Provide visibility and predictability to the business, leading to effective resource allocation.
- Align forecast methodology with pipeline deal reviews.
- Enable multi-dimensional variance calculations.
To achieve these goals, the business and MSIT focused on three major areas:
- Standardizing the pipeline-based forecasting process
- Providing a tool set to support the alignment of the pipeline and forecast
- Establishing a worldwide adoption framework to drive change management
Standardizing the Pipeline-Based Forecasting Process
Before the introduction of the new process, there was no agreement on how—or even if—Microsoft groups and subsidiaries should consider the pipeline when creating the revenue forecast. As a result Microsoft had different local processes in different areas, and Microsoft headquarters had no way of knowing how the revenue forecast was built on a deal level.
In order to increase transparency and make the process more efficient, MSIT started by standardizing the forecasting methodology. We aligned the pipeline process with the financial planning and revenue management processes.
The following graphic shows how Microsoft standardized the sales forecast:
Figure 1. Forecast creation – forecast methodology
To create the standardized sales forecast, we retrieved the sales budget and targets from the financial planning process. Next, we retrieved actual revenue (deals that are already booked) and scheduled revenue (future revenue from recurring contracts) from the financial revenue management. When we subtracted the revenue from the budget, we identified the gap that the sales team had to close to reach their sales targets.
The sales team now had the accountability to build a pipeline that covered the gap against the budget by 120%. This was great to build a strong pipeline; however, there was still no direct relation between the pipeline coverage and the financial forecast. To make sure that we were all using the terms in the same way, we defined pipeline and forecast:
Pipeline -Seeing the business we are pursuing
Standardized, predictive, and actionable
Forecast - Predicting the business we will win
Commitment, accountability, and accuracy
To link pipeline management with forecasting, we introduced the following new concepts:
- Committed Pipeline: Opportunities within the pipeline that are committed to the forecast (includes at-risk opportunities)
- Managed Forecast: Part of the forecast based on concrete deals and opportunities
- Unmanaged Forecast: Part of the forecast where the customer is not known yet
With these additional concepts, sales managers could flag opportunities in the pipeline for forecasting, adjust the value if needed, and flag opportunities for risk/revenue upside discussion. The sales team became more accountable for maintaining the pipeline and keeping it healthy. In addition, the transparency of the forecast increased. Managers could see about 95% of the forecast for the next quarter on a deal/opportunity level.
Providing a Tool Set that Supports the Alignment of Pipeline and Forecast
To support the new worldwide sales forecasting process, MSIT had to provide three major components:
- Operational Data Store that integrates financial data and pipeline data
- Forecast Creation System
- Forecast Reporting
The following graphic shows the major applications that make up the Forecast Creation System:
Figure 2. Forecast creation system – applications
- The Target Data Entry application allows the sales team to upload their sales targets into the system
- The Forecast Data Entry application allows the sales manager to review his or her pipeline and adjust the value or due date accordingly. In addition, the sales manager can set the corresponding commitment level
- The Forecast Adjustment Bulk Upload application allows the upload general of management adjustments and run-rate (unmanaged business) assumptions.
- The Forecast Operation Reporting application allows flexible analysis of the forecast by different dimensions and detailed data points.
Establishing a Worldwide Adoption Framework to Drive Change Management
The worldwide sales forecasting process affected more than 2,000 sales professionals and sales managers worldwide. More than 200 subsidiaries in 11 areas across the world needed to adopt the new process and the new tool set.
Consistent change management is critical to successful implementation; therefore we developed an adoption framework.
To ensure that the process and tools were in place for a successful adoption, we introduced several adoption phases to:
- Get business sponsorship
- Identify gaps in local processes
- Pilot the solution
- Implement and launch the solution
Figure 3. Adoption process
We built a stakeholder matrix to support the following requirements of effective stakeholder engagement:
- Align leaders and engage the right people.
- Ensure that messages are timely, relevant, and effective.
- Improve collaboration and strengthen partnerships.
- Proactively assess, monitor, and mitigate risk.
- Provide information that can be found quickly and easily.
- Identify a local “stakeholder champion” to manage stakeholder groups.
After we identified and engaged the stakeholders, a local adoption team (LAT) formed at each location to provide adequate training and support for each stage of the rollout. The LAT consisted of both local business representatives and field-based MSIT personnel who provided the local expertise needed to complete important launch activities effectively. The LAT provided local insight to help guide all deployment activities and ensure local success in each area and subsidiary. The LAT and MSIT worked collaboratively to help ensure that each local deployment experience went smoothly and was successful.
Microsoft operates in over 240 countries. Prior to the EBMS program, visibility of the sales forecast required considerable administration, management, and sales effort to collate and consolidate information from all 240 countries.
Following the delivery of EBMS, the forecast is now available on demand. At any time there is full visibility of the forecast from the company level down to the lowest level, an individual sales unit. There is no collation or consolidation required; the forecast is now a part of the standard sales process and comes out of the day-to-day sales cycle.
Both the Microsoft Sales Business Unit and MSIT enjoy significant benefits. The business has increased management insight, reduced cost, saved time, increased forecast accuracy, and freed sales and management roles from administration. For MSIT, EBMS aligns with MSIT core strategy, reduces risk, and introduces a single source of forecast data.
- Complete Transparency
There is complete transparency in the forecast—from the overall corporate figure through to the individual sales unit and sales person. Management can drill down on every figure for better understanding. Ownership of every figure is clear.
- Common Taxonomy
A common taxonomy is in place, agreed upon, and in use by all.
- Confidence in Forecast Figures
Management is confident in the forecast figures. Managers don’t need to discuss interpretation of the figures; they can concentrate on managing and progress of sales against the forecast.
- Efficient Process
The process is more efficient. Administration and sales staff no longer need to collate and consolidate the forecast.
- Increased Accuracy
The new process avoids errors that had been introduced during the process of collation and consolidation.
- Data Administration
Forecasting now comes out of the sales cycle; it is no longer a separate task that involves duplication of any activity. In addition to saving time, the new process also enforces standard data administration disciplines. As an important business indicator, the forecast gets high visibility and quickly highlights any anomalies caused by slack discipline.
- Reduced Cost and Risk
EBMS makes regional forecasting applications redundant, which saves Microsoft money and reduces the risk of undocumented applications and inconsistent data. EBMS also reduces MSIT risks, including duplicate data, hardware overhead, and dependencies on individuals.
- Single Source of Forecast Data
EBMS is certified by MSIT and the Microsoft Sales Business Unit as the single source of truth for forecast data. The only data on forecasting must be from EBMS, and MSIT and the business do not get distracted with validating or supporting any other source. A single, correct source of forecast data is also a cornerstone in the delivery of future business intelligence around forecast management and future trends.
Products & Technologies
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