A Memorandum from PharmaLand
To Alec: Head of Strategic Forecasting
From Sam: Head of Portfolio Development Committee
At the last meeting of the committee you picked up on a phrase that I used to comment on the fact that we had been fed a large portion of numbers and not a lot of insight into the decisions we need to make and the risks we need to manage.
‘Forecasting? It’s more than just the numbers – much more’
You then asked – much to the amusement of other members of the committee,
‘Well….if you need more than numerical forecast – tell me what ‘more’ means.’
And so – we have.
Here are our needs (more than the numbers)
- A one line forecast of your best shot. The Most Likely Forecast (MLF) together with the significant assumptions that support that forecast.
- And then tell us how confident you are in the forecast? What are the major uncertainties in the assumptions? I need this to understand the risk I’m taking in this particular forecast. (Sensitivities)
- Make me aware of significant other futures. They will be less likely than the MLF but possible and dependent on a switch in a major assumption. (Scenarios)
So here is a schematic of what we want to see:
The black line is the most likely forecast – supported with an Assumptions Set.
The blue lines show the bandwidth of a sensitivity analysis using a Monte Carlo Simulation. Ninety per-cent of all possible outcomes – using the MLF assumptions – will be within the two sensitivity lines.
The Red and Green lines are two outcomes that are based on a different set of assumptions to MLF. Let’s say the red, higher forecast is the result of a major competitor failing a clinical trial endpoint. The lower, green, scenario is a result of us achieving only a lower price with no price growth.
Were there benefits?
Our discussions can become more focussed on the way the forecast is constructed and how the assumptions drove the forecasts – rather than a sterile debate on whether the numbers were ‘big enough’.
The indication of uncertainty in forecasts with the context of other possible futures also heled manage risk in the development portfolio.
Will this approach solve all the problems associated with communicating forecast I hear you ask. Well, no – but it will be a big step forward.
Actually, Alec – There was the start of a discussion of the need for a decision support platform to get the assumptions and the numbers in front of the stakeholders at the same time.
But that’s for next time.
Copyright: Alec Finney March 2018