Forecasting in project management can provide helpful information for developing solutions for future uncertainties or risks. Learning how forecasting works can help you consider unknown variables while planning and executing projects to ensure successful outcomes.
In this article, we define forecasting in project management, explain forecasting techniques and provide tips to help you use forecasts effectively for your next project.
What is forecasting in project management?
Forecasting in project management is the process of answering questions to predict the future conditions of a project, such as how to distribute resources for ongoing projects. It enables project managers to make decisions based on past and present data. Forecasting typically begins partway into the project to allow time for comparative analysis. Depending on the project’s length, forecasting may occur periodically throughout various phases.
Forecasting can help project managers communicate a project’s status to stakeholders and take steps to improve profitability. Other benefits of this process include:
Determining KPIs: Forecasts can help you determine what key performance indicators (KPIs) to use for various projects. You can track KPIs and compare those metrics with forecasts to determine whether to change project workflows or processes.
Identifying skills: As a project progresses, tasks or responsibilities may change. You can use forecasts to determine whether to reassign tasks based on team members’ skills or add more qualified professionals to the project team.
Organizing resources: Forecasting provides insight for project managers to manage resources so team members perform optimally. You can review forecasts to organize resources based on expected changes to the timeline, cost or other factors.
Anticipating delays: Project delays can impact deadlines, budgets and other areas of the project. Forecasting allows you to analyze trends to anticipate delays so you can take preventative measures.
Types of forecasting in project management
There are different forecasts you can use in project management. The common types of forecasting are:
Forecasting the duration of a project can help you meet key milestones and deadlines. To forecast the duration, consider potential project risks or uncertainties, such as increased costs, to determine how long the team may take to complete the project. For example, if a project has a six-month timeline but forecasting suggests it may take longer due to supply chain delays, a project manager can communicate this update to clients or stakeholders.
When forecasting project cost, you can consider past and present spending trends to determine an accurate budget. You can use this information to predict whether the team may complete the project within its allotted budget. For example, when the project budget is $350,000, a project manager may analyze spending costs and forecast the project to stay under budget by $100,000.
You can use forecasting to estimate the quality of project outcomes. You may analyze prototypes, consider historical data or monitor team members’ performance to determine the expected quality of project deliverables. For example, a project manager may use forecasting to determine whether the project team can successfully implement a new software release based on the team’s past outcomes.
Forecasting methods in project management
You can perform several analysis tests to manage potential uncertainties and predict project outcomes successfully. Here are three techniques you can use to create project forecasts:
1. Trend analysis
In trend analysis, you evaluate historical activity and patterns to make predictions. These might include buying trends, seasonal trends or products that appear in response to an event, such as team merchandise after a championship win. This analysis can create forecasts for different project variables, including cost and duration.
Example: A project manager for a new sunglasses company studies buying trends and discovers different demographics who purchase sunglasses at different times of the year. Their current project data supports that theory. The project manager forecasts when the trend may change so they can prepare to reach other demographics in future projects.
2. Break-even analysis
Typically, companies strive to sell a certain number of products to cover the cost of production. In a break-even analysis, you estimate the total project cost and use this figure to determine how many products to sell to make a profit. You can make this determination by evaluating how many units the company has already sold and the expectation for future sales. This analysis can help determine the financial viability of a project.
Example: A cycling company plans to launch its newest road bike, which costs $100 to produce. A project manager reviews the cost of production and accounts for other costs, such as personnel and manufacturing, to create an accurate forecast. The project manager determines the company can sell 50 bikes over a four-month period to cover all costs and make a profit. After the first month, the project manager revises the forecast because data suggests bike sales may increase over the spring. The company decides to raise the bike’s price in the third month.
3. Cost-benefit analysis
You can use a cost-benefit analysis to prioritize various projects. In this analysis, you compile a list of each project’s cost and potential benefits to assess which project may have a better outcome. This forecasting technique provides a way to compare projects and determine which one to pursue. If there’s more than one ongoing project, you can also use this technique to assess each team’s performance to decide which project requires more attention and resources.
Example: A project manager at a software development company is deciding between two projects. The manager estimates the first project may take two years to complete and cost $200,000. They determine the second project may take six months and cost $150,000. The project manager compares project data and the forecast to determine the short-term project is easier to manage and may provide more benefits than the longer project. They decide to launch the second project, and forecasting confirms the short-term strategy performs better than expected.
Tips for using forecasting in project management
Follow these tips before forecasting your next project:
Stay up-to-date with technology. Technology changes rapidly and you may learn about new tools you can use for your next project. By staying aware of technology evolution, you can forecast whether new resources or team members with new skills may help achieve successful project outcomes.
Be aware of future requirements. When forecasting, be aware of future requirements stakeholders or clients may have for the project. Note trends and changes in the market so your forecast can determine how to fill gaps in supply and demand or acquire sufficient resources.
Know the team’s strengths and weaknesses. When forecasts suggest changes to the project or its team, be sure to review the performance of team members so you can assign the right people for various tasks. Knowing your team’s strengths and weaknesses can maximize their potential.
Compile and consolidate data. Data might come from several sources or departments, each providing a different view of the company or project. Consolidate data to form a complete vision of the project and its goals to ensure forecasting addresses the sectors of the organization the project might impact.