By Ari Weinzweig, Zingerman’s Co-Founding Partner
written for Specialty Food Magazine

We’re approaching our 22nd anniversary at Zingerman’s. If you had told me back in 1982 that, in 2004, we would have a staff of 400, sales of more than $20 million and that we’d be doing extensive and detailed planning and forecasting work, I’d have said that you must be confusing us with another Michigan company, General Motors. As a tiny startup, annual planning was not even on my radar. It’s what people did in big corporations.

We did what most everyone does at that stage of organizational life—we “winged it. The business is small; things change quickly; you make it work. That worked just fine for the first five or six years. Finally, about ten years into our organizational life, when sales were about $5 million and we had a staff of about 100, we started to do formal annual planning.

What are the signs that it’s time to plan? You probably know them all too well. Too many surprises. You thought you’d have the money to do what you want but then discover that you don’t. Department managers fight over limited resources. People do not have a sense of where you’re headed. It always seems like you’re reacting at the last minute, continually behind the 8 ball.

If that stress is wearing on you, a good annual planning process may be one tool to help. When you add good forecasting to the planning, you will be headed for even more positive changes.

Planning vs. Forecasting
Five years ago, as part of our move to Open Book Finance (see Specialty Food Magazine, October 2003), we started to do forecasting as well as annual planning. As we define them, these are two different, though certainly related, things.

“Planning is something we do annually. Each business and department works out a vision of greatness defining what they will have attained by the end of our fiscal year. They then map out a detailed plan of action steps that they will take to get there. Then, they agree on a financial plan that will support that work, detailing sales, expenses and profits on a weekly basis through the entire fiscal year. (Many organizations refer to annual planning as budgeting; we see it as much broader than that. We include plans for improvements in food quality, service quality, quality of workplace, etc.) Once we agree on our annual plans, the numbers are set, basically in stone. They are our commitment to the business of what we’re going to deliver in the coming year, both in terms of numbers and in terms of content.

“Forecasting is something we do once a week. Quite simply, the forecast is the most up- to-date prediction of what our business or department’s performance results will be for a given period in the future. We usually forecast at least three to four weeks out, in some departments six to eight, on key numbers. To use a sailing analogy, the annual plan is like charting an initial course before you leave port; the forecast is about checking current coordinates and then tacking effectively to actually end up at the agreed-upon destination.

Can you do only planning and skip the forecasting? Yes. Most businesses that do annual plans or budgets do not do the more in-the-moment forecasting. Annual planning is critical because it sets the long-term outline and objectives for where we are going and a week-to-week/month-to-month map of how we will get there.

The problem we ran into when we were only doing planning—and not forecasting—is that the plan was often so far off of reality that people stopped paying attention to it. Using the two together have consistently produced the best results.

Why Forecast?
Many entrepreneurs resist planning and forecasting. It seems counter to the free-wheeling, entrepreneurial spirit that helped us get started. But what worked when we were a startup just does not work so well when we get bigger, when our organizations are maturing. Effective forecasting and planning is one of the ways to help support that maturation process. Good forecasting work can help us to:

1. Create the future that we want.
The act of doing regular forecasting often improves the results we get. When we don’t forecast, people keep their heads down, do their own work and don’t see the big picture enough to fully grasp on a day-to-day basis what a difference they can make. They get discouraged and disengage. Stress goes up, job satisfaction goes down, leaders run around trying to fix everything themselves.

By contrast, talking together about where we’re trying to go in the coming weeks creates a sense of teamwork and togetherness that encourages more positive results. Forecasting creates a dialogue amongst those who are doing the work that yields amazingly creative solutions to problems that everyone had previously gotten so used to that they stopped trying to solve them. Energy levels improve; so too do results.

2. Increase people’s sense of empowerment.
Forecasting at Zingerman’s is not done in the back room. While the background work can be done by individuals or in small groups, the forecasts are presented in our staff meetings (actually we call these huddles) to the entire department. Everyone involved—not just an accountant or a manager—gets a better sense of what’s coming. When people are involved in talking about a future that they will be a part of, their sense of empowerment goes up. It allows them to think more creatively. It helps build energy rather than deplete it. The staff believes that they can influence their own future, that their work can and will make a difference.

3. Create a more ethically sound workplace.
Zingerman’s Guiding Principles specifically state that we’re committed to sharing as much information as possible with everyone in the organization. Consistent and effective forecasting honors that commitment. When we don’t forecast, or if we forecast but don’t share the forecast with all involved, we are not living those principles. We’re leaving staff in the dark; they’re often caught off guard and unprepared for things that impact them in big ways.

Let me share a true story that happened a few years ago. It’s a great illustration of how good forecasting can help the business run more smoothly and create a better workplace.

A few years ago, one of the departments had slacked off on doing good forecasting work. To compound the problem, we had a new manager who was only in his first year of the business cycle. As a result, the entire department was caught “off guard by the slowness of sales during 4th of July week. Even though sales were historically slow that week, no one amongst the front line staff was thinking about it. When the schedule went up for the week—with appropriately low staffing levels—employees were furious that they would not get their hours. Because we had slacked on forecasting, no one was prepared. They’d been counting on their “regular weekly paycheck.

We were able to scramble and find hours in other parts of the organization for staff who needed to work. And the following year we were back on track with doing our forecasting. When the sales staff showed the numbers for 4th of July week, it was clear that not many people were needed to work. So staff scheduled vacations, made alternate plans, arranged work elsewhere in the organization.

Forecasting made a win-win solution to this problem very possible; we were able to live our commitment to creating a positive workplace, while still being fiscally responsible. For the staff there were no surprises. No one was caught without cash; there was far less stress while at the same time we kept labor costs to an absolute and appropriate minimum.

4. Anticipate instead of react.
The alternative to forecasting is essentially walking forward with your eyes closed and hoping you don’t trip over anything. It might work for awhile, but it can be a drag when you start falling over stuff you didn’t see. It’s a lot easier to succeed when you work to prepare for what you think will happen rather than just rolling the dice and waiting for it to happen to you.

To help us discipline ourselves, we use what we call our “80/20 rule. The rule dictates that about 80 percent of our time in meetings will be spent forecasting what’s coming up and what we’re going to do about it, and only 20 percent will be about reporting what’s already happened.

5. Allow everyone to make a positive difference.
When people get good at forecasting, they realize how interdependent we all are, which quickly helps improve efficiencies across the entire organization. While this may be obvious to those who run organizations, it’s rarely something front-line folks think about as often as we’d like. Good forecasting changes that. If the sales staff forecasts that we will suddenly do sales 30 percent above plan levels, someone will quickly conclude that this means that buying will likely need to go up. Cash flow will be impacted; we may need to put on more shipping/delivery staff to send out the orders or more receiving staff to take in the newly ordered and needed inventory. That sort of insight and information allows us to plan for problems, take advantage of opportunities, and build organizational synergies as effectively as possible.

Forecasting is something we do once a week. Quite simply, the forecast is the most up-to-date prediction of what our business or department’s performance results will be for a given period in the future. We usually forecast at least three to four weeks out; in some departments, six to eight, on key numbers. To use a sailing analogy, the annual plan is like charting an initial course before you leave port; the forecast is about checking current coordinates and then tacking effectively to end up at the agreed-upon destination.

What to Forecast
Ideally, every significant operational number in your business should be forecast. Start with a few key areas. Sales are certainly one. All large expense items are important—cost of goods and labor cost are somewhere from 50 to 70 percent of our costs, so we always forecast those. Each of our businesses forecasts cash on hand; most also forecast accounts payable and accounts receivable.

Five to ten critical areas are a good number to start with. Be careful not to make the work so overwhelming that no one can cope with it. And remember that deciding what items to measure and forecast is not something that is effectively delegated. It’s great to get input from others in the organization but, especially in the beginning, leaders must take an active role in determining what will be tracked.

Ultimately, we aim to forecast about 15 to 30 important items in each department or business on a weekly basis. Because we use what is referred to as a “balanced scorecard, we also forecast key service and food quality measures.

We forecast numbers that don’t show up on financial statements but are critical to success. At Zingerman’s Roadhouse, we forecast check average. At the Deli, we forecast purchases, inventory levels, etc. We forecast the number of proposals we’ll send to consulting clients at ZingTrain. We also forecast the number of new hires we’ll bring in. Again, the idea is to forecast any meaningful number that has significant impact on the performance of your business.

Who Should Forecast
Forecasting is done best by those closest to the work, not by the people who have historically had access to the numbers. In other words, sales forecasts should be done by someone who actually sells and talks to customers, not by an accountant. Labor costs would best be forecast by someone active in scheduling, not by the person who submits the payroll data. The delivery manager should address driving or delivery issues.

We assign responsibility for each forecasted item to an individual who then “owns that line—they report, forecast, explain variances between forecast and actual numbers, and are responsible for helping to get results. To work well, the forecast is not just a set of unattached numbers. A good forecast becomes a story, a story of what you believe—to the best of your ability—is going to happen.

How to Forecast
Front line people are not experienced at forecasting. At best, they have received reports on their numbers from office staff elsewhere in the organization. Almost everyone forecasting for the first time gets nervous and asks something like, “How can I possibly tell you what sales are going to be when I don’t know?

The answer is, “You’re right. You don’t know what’s going to happen, but you forecast anyway. Forecasting is not a science; even the best forecasters are off the mark sometimes. (Just watch those who forecast weather or movement in the stock market.) There are always uncontrollable factors that will impact the actual results and may or may not end up supporting the forecasts.

People’s natural reaction to that “out of control reality is not to forecast. “I can’t know what the sales will be, so why bother is a normal response. But forecasting, like anything else in life, is something you get good at only when you practice regularly. Anyone who works at it can become impressively good at forecasting. And the better we all grow to be, the better the organization runs.

5 Steps To Fine Forecasting
1) Get Data
• Check historical data by looking at performance over the past few years • Take note of macro trends in the world, product issues or other unusual events that might have impacted performance last year • Benchmark against others in your industry • Check current year-to-date and month-to-date data • Check recent trends in your business • Talk to front line staff to see what they think • Talk to customers • Check ratings from six months or so earlier • Keep up with the news locally and nationally • Check in with others on your team who are forecasting • Talk with industry peers • Check calendars for holidays, special events, school vacations, etc. (Note that holidays may fall at different times of the month—or with lunar-based holidays, different months altogether—from one year to the next.)

2) Check Your Math
All the various numbers being forecast need to tie out. So make sure that the numbers you are forecasting mesh. If you forecast sales of $10,000 a week with a labor cost of 20 percent but your cash flow forecast shows a labor expenditure of $2,400, something is not in synch.

Compare apples to apples. Is this year’s data comparable to last year? Or has a key product sales component or cost been moved from one line item to another? Be sure to contrast the most appropriate information—for instance, compare the third Monday in October 2004 to the third Monday in October 2003, not October 15, 2004 to October 15, 2003.

3) Check Reality
Do a quick reality check. Can the numbers you are forecasting happen? Divide the sales forecast by the number of sales you need to hit that forecast (based on average sale) and see if it makes sense. Can you produce the quantity of products required for such a big week of sales? Do you have enough staff to do the production work?

4) Run With It
Many people resist putting up a forecast on time because they’re worried it’s wrong. Remember: It’s a forecast. It is more important to forecast on time than to wait until you have all the numbers perfectly aligned.

5) Check Actual Results Against the Forecast
This is the key to getting good at forecasting. The week after you forecast, compare what you said was going to happen to what took place; when there’s a variance, you need to explain what caused it. Examine why you were higher, lower or on forecast. And, over time, watch the trends. If you forecast 10 percent high every week for four weeks . . . you get the idea.

Adjusting to Reality
At Zingerman’s, the annual plan is the peg that we’ve stuck in the ground to mark the place we committed to ending up at the end of the year. We don’t always make it but we don’t take that commitment lightly. If the weekly forecasts show we will be off target at the end of the year, we need to adjust to get back on plan. Forecasting allows us to adjust to the realities of week-to-week life in the trenches. But the idea is that usually—though there are exceptions—we’re giving it everything we’ve got to successfully meet or beat the annual plan numbers.