OIS is updated when ever a new forecast is required. There are two scenarios that require a new forecast:
- Quarterly for largest brands and likely, in the future, more often. Objective is to update the response functions, as described below.
“In healthcare, particularly pharmaceuticals and biotechnology, the process looks different by brand within the same company. The largest brands are reviewed quarterly, but there is a shift to move to monthly updates. The smaller brands are reviewed 1-2x per year.” Glenn Sabin, ZS subject matter expert.
A comparison is made of the demand OIS had forecast-ed for that quarter with that quarter’s actual demand. For those differences deemed significant, the associated response functions are updated. OIS then computes a new income statement including a new most profitable forecast.
Thus, OIS’s forecasted demand for the next quarter for the largest brands is currently the same as the actual demand, lagged by three months.
- Any time: The judgment-based forecast is updated when any of OIS’ assumptions change. At which point, OIS is updated and a new, most profitable income statement is developed. Examples include:
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- New product’s shipment date slips
- Economic conditions change
- Competitive assumptions change
- New production equipment doesn’t perform as well as was projected
- Facilities are damaged by fire, weather, etc.
- Production equipment breaks down
- Et al.
In such situations, it is important to remember OIS has the line items details explicit so the update details cited above can be implemented.
Such updates are impossible with the traditional budget and income statement. Quoting Accountingtools Budgeted Financial Statements:
“Budgeted financial statements are usually limited to a summary-level income statement and balance sheet, and are compiled within the budget model.”