Before We Invest What Makes This Forecast Believable
A growth proposal usually explains why an opportunity is attractive. For a CEO or board, the next question is whether the forecast is strong enough to justify the commitment.
The team may know the market well. The spreadsheet may be detailed. Neither tells us how closely the results will follow the plan.
One useful place to start is with earlier forecasts. When we last approved something comparable, what did we expect—and what actually happened?
The scale of a commitment can change the choice
Target’s expansion into Canada shows why this question deserves attention.
In November 2013, the company said it was on track to have 124 Canadian stores open by year-end. Its Canadian segment subsequently reported a US$941 million operating loss for fiscal 2013.[1][2]
In January 2015, Target announced its exit from Canada, where it then had 133 stores. Management said it could not find a realistic path to profitability until at least 2021. Target’s 2014 annual report recorded US$5.105 billion in pretax exit costs, including US$4.766 billion of investment impairment.[3][4] Those accounting charges should not be mistaken for cash exit spending.
We cannot conclude from these disclosures that nobody challenged the original expansion. Nor can we know that a smaller launch would have succeeded. The case does make the cost of reversing a large commitment visible.
For a board reviewing its own proposal, that raises a practical question: how much will we have committed before we can judge whether the central assumption is right?
Compare the forecast with outcomes
Daniel Kahneman and Dan Lovallo described an “inside view” of forecasting: concentrating on the details of the current plan and how we expect it to unfold. The “outside view” brings in the results of comparable efforts.[5]
For a new-market proposal, I would ask the team to bring the original forecasts and actual results from relevant previous launches. Where did demand arrive more slowly? Which costs were underestimated? How long did it take to reach the expected margin?
Then I would ask the sponsor to explain why this proposal should perform differently.
There may be good reasons. The company may now have a stronger distribution network, confirmed customer contracts or a more experienced local team. Those differences deserve examination. “We have learned from the past” needs to be supported by specific changes in the plan.
If the company has no comparable experience, external examples can help. The comparison still needs care: a successful launch by a business with an established customer base may tell us little about entering a market from scratch.
Decide how much to commit before we learn
The forecast should help us choose the next commitment, rather than simply support approval of the whole proposal.
Consider an illustrative expansion costing ₹20 crore. Suppose a ₹4 crore first phase could test the customer demand on which the larger investment depends.
The relevant question is whether that first phase would produce reliable evidence. If it would, the board can agree what result justifies releasing the remaining ₹16 crore. If it would not—for example, because demand depends on launching the full network—the team needs to explain why a staged approach would give a misleading answer.
These figures are an illustration, not a documented company case. The decision principle is to identify what we can learn before making spending difficult to reverse.
For the next investment review, I would ask for a short addition to the proposal: the most relevant comparison, the assumption most likely to change the economics, and the evidence required before the next commitment.
An experienced peer can examine whether those answers are convincing. Their most useful contribution may be to notice that our forecast assumes an advantage the company has not yet demonstrated.
We will never remove uncertainty from an investment decision. We can make clearer why we believe the forecast, how much we are willing to commit before learning more, and what would cause us to change course.
Sources
[1] Target Corporation, Third Quarter 2013 Earnings, 21 November 2013.
[2] Target Corporation, Fourth Quarter and Full-Year 2013 Earnings, 26 February 2014.
[3] Target Corporation, Plans to Discontinue Canadian Operations, 15 January 2015.
[4] Target Corporation, 2014 Annual Report, Note 7, Canada Discontinued Operations.
[5] Daniel Kahneman and Dan Lovallo, Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, Management Science, 39, 17–31, 1993.
Written by Sonali Behere, Editorial Team | CEO Cohort India
About the Author
With 21+ years of experience in IT delivery, she brings extensive expertise in SAP projects, delivery governance, and leading multi-geography teams. Her leadership approach combines structured execution with collaboration, accountability, and a strong focus on sustainable outcomes. She is passionate about continuous learning, meaningful contribution, and growing as a thoughtful leader.
