Three basic methods to plan for the coming year

While the traditional approach is to look at historic growth rates, this approach can produce a forecast based more on the past than the future. Here are three approaches that can help keep your plan focused on the future.

Economic Multiple

Look at the forecasts for industrial production index (IPI), gross domestic product (GDP), or other relevant indexes for the coming year (usually estimated by the Bank of Thailand or economic data services, like the Economist Intelligence Unit). Then, decide upon a multiplier - like 2x or 3x. The plan is to perform at some multiple of the attachment rate of the key economic driver in your industry. So, the multiplier should reflect your confidence in the details of your plan.

Entitlement Approach

Six Sigma uses a concept called "entitlement thinking" to help an enterprise reach its full potential. In this context, "entitlement" means the best possible capability of a process. Here is how it works: First, determine your current sales performance; second, determine the total potential for your market. This should include all potential buyers. Third, compare your current sales to the "entitlement" sales; and finally, set your goal based on how much of the "gap" you intend to close. This method is meant to trigger "breakthrough" thinking. 

Sources of Growth

Another approach is to think through growth in its elemental form. This is a "bottom up" approach that does a good job of identifying any gaps in the plan.

First, estimate what your base business level is, based upon GDP, IPI or market growth; second, estimate any erosion resulting from share loss, non-repeat business or decreased use; third, estimate any share gain you expect from your programmes, sales from new customers, new products or acquisitions; and finally, estimate any impact from the pricing plan.

This approach will help identify gaps in the plan and mark out areas where you may need further focus.

Given the uncertainties in next year's planning horizon, such as oil prices and inflation, it may make sense to use more than one approach in determining next year's plan.

Paul Acito is managing director of 3M Thailand. Follow his articles the fourth Wednesday of every month.