Why Finance’s Forecast is Inadequate for Workforce Management

by | Aug 5, 2014

Chances are you’ve already have at least one – if not more than one – forecast floating around your company.  Of course, the one that matters the most is the one provided by Finance.

Finance’s forecast is accurate.  Your Executives have confidence in it.  So, why would you need a separate forecast for workforce management?

There are two reasons:

1.Scope. Your labor model probably specifies that you need to forecast more than one driver.  Meanwhile, Finance’s forecast may only includes Sales. Other drivers such as Transactions, Items/Units, Cartons/Crates, and Customers are not usually part of that forecast but are necessary to generate workload.

2.Level of Detail.Most of the time, Finance’s forecast is a weekly or daily forecast.  Your WFM system will need a more detailed forecast, often down to the 15-minute interval by store or, more specifically, by driver.

So, what are you to do? How do you balance your need for more drivers and detail with Finance’s forecast?

The best approach is to work with Finance to vet the forecast provided by the WFM system and get them comfortable with its output.  This can easily be accomplished by generating forecasts with the system using your data and comparing the results of the forecast with what actually happened. (Hint: Forecast weeks that have already occurred so that you can do the comparison now rather than wait for some results to start coming in.)

If you still can’t get Finance comfortable with the WFM system-generated forecast, then you’ll need to consider importing Finance’s forecast into the WFM system.  You can do this a couple of different ways.

The first approach is to import Finance’s forecast into the WFM system as a budget.  Most WFM systems include the concepts of both a forecast (a short-term prediction of what will happen) and a budget (the amount of money or hours allocated for a particular purpose).  By repurposing the budget fields in the WFM system, you can let the WFM system generate a forecast as it is designed to do while including Finance’s forecast.

Of course, if you want to use the budget fields as they were design (i.e., to hold a budget), this approach will not work, but then again if you’re importing a budget, then you probably don’t need to worry too much about Finance’s forecast.

The question you’ll need to answer is whether you want to use Finance’s forecast as a hard constraint that causes the forecast to be increased or decreased to match the budget, or as a soft constraint that the store manager can use Finance’s forecast as a reference when working with the WFM system-generated forecast.  Most WFM systems allow you to do both.

The second approach is to import Finance’s forecast into the WFM as a forecast.  This approach sounds logical but creates some problems.  As I said earlier, Finance’s forecast is not as complete or as detailed as the forecast you need to generate labor in the WFM system.

If you take this approach, you’ll need to figure out how to fill the gaps in the forecast that Finance provides.  This will involve forecasting drivers that are not provided by Finance and filling in the detail, such as the intraday distribution.  This can be hard, if not impossible, in many workforce management systems and may result in customization.

Both of these approaches involve a more work than simply letting the WFM system’s forecasting engine run.  As a result, I always recommend trying to get Finance comfortable with the results and resort to these other measures as a last resort.

This post is part of the Axsium Retail Forecasting Playbook, a series of articles designed to give retailers insight and techniques into forecasting as it relates to the weekly labor scheduling process.  For the introduction to the series and other posts in the series, please click here.

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