Kit 05: forecast and plan
Pipeline and Plan Kit
Forecast the delivery month from committed revenue, weight the pipeline from your own history, plan the year in steps, and write the cut order before you need it.
This kit forecasts the delivery month and plans the year for a services firm. It is for the founder, CEO or finance director of a firm that earns from time and materials, projects, retainers or managed services, often all four at once, and whose forecast is a pipeline report with a percentage beside each deal.
The forecast starts from committed revenue: work signed and scheduled, measured every week from eight weeks before a month begins and checked against the final invoice when the month closes, so you learn how far your own forecast can be trusted. Pipeline is kept apart from backlog, because a deal that might sign and work that has signed are different kinds of money. Stage weights are recalibrated from your own win history rather than the defaults in a CRM, and coverage is read by horizon: this month, next quarter and the rest of the year.
The plan works from the forecast. The run-rate staircase lays out each step up in monthly revenue with a hiring trigger at every step, so people are added when the revenue to pay them is committed. Each type of revenue gets its own engine, because a retainer, a project and a managed service fill the year in different shapes. The annual plan is gated, with spending released stage by stage as the revenue that pays for it arrives.
The last chapter is the one you hope never to need: the cut order, meaning what goes first, second and third if the cliff in the forecast turns out to be real. It is written in advance and in calm, so that if the day comes you are carrying out a decision rather than making one.
It is written from how I ran DevOpsGroup, from my notes and my recollection. Every weight and default in the model is invented, labelled as such and yours to change.
What you will get
Who it is for
Questions
- What is committed revenue?
- Revenue from work that is signed and scheduled for a given month, as opposed to pipeline that might sign. The kit measures it every week from eight weeks before the month begins, then checks it against what was finally invoiced, so you learn how far your own forecast can be trusted.
- What is the difference between backlog and pipeline?
- Backlog is work that has been signed and not yet delivered. Pipeline is work that might be signed. They are different kinds of money, and a forecast that adds them together, even with weights, hides the difference that matters most when a month goes wrong.
- How is forecasting recurring revenue different from forecasting project work?
- A retainer or a managed service fills the year as a steady line from its start date until the term ends or notice is given; a project fills a few months in the shape of its plan, and time and materials follows the people booked to it. Forecast one with the other's arithmetic and both come out wrong. The kit gives each type of revenue its own engine and adds them together only at the end.
- How should pipeline stage weights be set?
- From your own history. The default percentages in a CRM describe nobody in particular. The kit recalibrates each stage's weight from the deals you have actually won and lost, and reads coverage by horizon rather than as one number for the year.
- What is a cut order?
- A list, written in advance, of what you would cut first, second and third if revenue fell short. Writing it while nothing is wrong means that if the day comes, you carry out a decision you made calmly instead of making one in a hurry.