What are the risks of over-forecasting service demand in Service Operations?

Service operations are the activities that deliver value to customers through intangible products, such as consulting, education, health care, or entertainment. To manage service operations effectively, you need to forecast the demand for your services and plan your capacity accordingly. However, forecasting service demand is not an exact science, and you may end up over-estimating the number of customers who will use your services in a given period. What are the risks of over-forecasting service demand in service operations? In this article, we will explore four possible consequences of this common mistake and how to avoid them.

1 Wasted resources

One of the main risks of over-forecasting service demand is that you may allocate too many resources to your service operations, such as staff, equipment, facilities, or inventory. This can result in wasted costs, idle capacity, and lower productivity. For example, if you hire more employees than you need to serve your customers, you will have to pay them for their time, even if they are not fully utilized. Similarly, if you invest in more equipment or facilities than you need, you will incur higher maintenance and depreciation expenses, as well as opportunity costs of not using them for other purposes. Moreover, if you stock up on more inventory than you need, you will face higher storage and handling costs, as well as the risk of obsolescence or spoilage.

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Betsy Rios, CPC

Founder and CEO @ Divinity Health Consulting | Revenue Cycle Management, Coding Management, AAPC Subject Matter Expert, Consultant, RHC/FQHC Expert, Provider Education, RCM services, coding and auditing
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This can also result in a company having to let employees go due to lack of work. It is difficult to retain talent if you have to let workers go when volumes and work is not available.

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2 Lower quality

Another risk of over-forecasting service demand is that you may compromise the quality of your services, either intentionally or unintentionally. For example, if you expect a high volume of customers, you may reduce the duration or depth of your service encounters, such as consultations, sessions, or appointments. This can lead to lower customer satisfaction, loyalty, and retention. Alternatively, if you have more resources than you need, you may lose focus or motivation to deliver high-quality services, as you may feel less challenged or pressured. This can result in lower employee engagement, performance, and morale.

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Slava Gorovoy

AI Business Visionary I GenAI Enthusiast | Innovation Thought Leader I CX Strategist | I Harness AI and Big Data To Generate A 200% Increase in Brand Loyalty
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Over-forecasting service demand in service operations can have several negative consequences and risks, which can impact a business's financial performance and customer satisfaction. Some of the most critical impacts can be decreased employee morale: Continuously over-forecasting and having employees idle due to overstaffing can lead to boredom, dissatisfaction, and lowered morale among the workforce. On the other hand, understaffing can lead to work overload and burnout. This can, in turn, affect the quality of customer service, negative brand impact and financial losses.

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3 Missed opportunities

A third risk of over-forecasting service demand is that you may miss out on opportunities to serve other customers or markets, or to improve your service operations. For example, if you are over-confident about your demand forecasts, you may ignore the feedback or signals from your customers, competitors, or environment that indicate a change in customer preferences, needs, or expectations. This can lead to lower customer value, differentiation, and innovation. Similarly, if you are over-committed to your existing service operations, you may neglect the opportunities to expand your service offerings, reach new segments, or enter new markets. This can limit your growth potential, market share, and profitability.

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4 Damaged reputation

A fourth risk of over-forecasting service demand is that you may damage your reputation and credibility among your customers, partners, or stakeholders. For example, if you over-promise and under-deliver on your service quality, availability, or timeliness, you may lose the trust and confidence of your customers, who may perceive you as unreliable, unprofessional, or dishonest. This can lead to negative word-of-mouth, complaints, or lawsuits. Likewise, if you over-estimate and under-achieve on your service performance, revenue, or profit, you may disappoint your partners or stakeholders, who may question your competence, integrity, or accountability. This can lead to lower collaboration, support, or investment.

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Betsy Rios, CPC

Founder and CEO @ Divinity Health Consulting | Revenue Cycle Management, Coding Management, AAPC Subject Matter Expert, Consultant, RHC/FQHC Expert, Provider Education, RCM services, coding and auditing
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This can definitely have a negative impact on employees and your reputation as an employer. If you are constantly high on your forecasting and being forced to furlough or lay off employees.

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5 How to avoid over-forecasting

To avoid the risks of over-forecasting service demand in service operations, you need to adopt a more realistic, flexible, and data-driven approach to your demand forecasting and planning. For instance, use multiple sources and methods of data collection and analysis to estimate your service demand more accurately. Additionally, monitor and update your demand forecasts regularly based on actual demand patterns, trends, and variations. Furthermore, adjust your capacity and resources accordingly to match your supply and demand. You can use strategies such as hiring temporary staff or leasing equipment or facilities to increase or decrease your capacity as needed. Finally, communicate and coordinate your demand forecasts and plans with customers, partners, and stakeholders using tools such as contracts or incentives to influence or control your service demand.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Betsy Rios, CPC

Founder and CEO @ Divinity Health Consulting | Revenue Cycle Management, Coding Management, AAPC Subject Matter Expert, Consultant, RHC/FQHC Expert, Provider Education, RCM services, coding and auditing
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At a company I worked at previously they would hire staff to manage new clients who only indicated intent to sign a contract. When a client then did not sign the contract they had nowhere to place employees and it became a vicious cycle of hiring then laying off. They found it difficult to attract and retain talent in the industry.

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What are the risks of over-forecasting service demand in Service Operations?

1

2

3

4

5

6

1 Wasted resources

2 Lower quality

3 Missed opportunities

4 Damaged reputation

5 How to avoid over-forecasting

6 Here’s what else to consider

Service Operations

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What are the risks of over-forecasting service demand in Service Operations?

1

2

3

4

5

6

1 Wasted resources

2 Lower quality

3 Missed opportunities

4 Damaged reputation

5 How to avoid over-forecasting

6 Here’s what else to consider

Service Operations

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