Integrate the forecasts of one level into the next level.
For example:
Management may have an overall goal for the company of a 20% increase in sales but
not all areas of the business probably can do this.
Management conveys their wish to all of those people in the company that will have a
PPO. On an individual basis, they design a personal PPO with the goal of a 20%
increase in mind.
However, more importantly, that person's PPO should reflect realistic goals that will
stretch the person's capability but be seen by all concerned as achievable.
In an individual case, it may turn out that a 12% increase in sales may be a realistic
goal but, for another person, a 22% increase might be realistic.
After all, of the PPO for the field salespeople in a business division are completed, the
manager of the division bases his or her PPO for their division on the total of the
PPO of their field salespeople.
If the division managers reported to a general manager, the general manager would
base his or her PPO on the total of the division managers PPO.
Therefore, the process of preparing PPO starts with goals expressed by senior
management. It then starts at the bottom and moves up through the ranks of the
company until, ultimately, it would reach the CEO of the company who, in turn,
has to answer to the Board of Directors and the shareholders.
At each level, the managers have to realistically factor that only 75–80% of the overall
PPO will be achieved if they have been crafted properly.
By the time, the process is completed, what started as a desire on the part of
management for a 20% increase in sales may now be modified to 15%.
This realistic projection provides a more reliable basis for the company committing
funds to the necessary raw materials, etc., to support the expected performance in
the field.
- It should be accepted by all parties that there will be some flexibility in
establishing PPO in different areas or divisions of a business because there
can be great differences in the potential or capabilities of each division. - In the main, PPO must be consistent with the overall business plan
requirements of the business and its marketing strategy.
There are six important criteria to keep in mind when establishing PPO in order
to avoid confusion or resentment at the time of the assessments.