Walgreen's Billing Error

Walgreen’s Billion Dollar Forecasting Error Forecasting is a preparation tool that helps a company figure out what might happen in the future; and to do so, the company will primarily rely on data from both the past and present to figure out possible trends. Forecasts can be made in short term, medium term or long term. When it comes to forecasting it is important for a company to look at all possible factors including fluctuation of prices and the market, possible declines in the economy, technological errors and so much more. In 2014 the well known pharmaceutical company Walgreens prepared to forecast the companies earning up to the year 2016. However, somewhere during their process an error occurred resulting in the company suffering from a billion dollar cut. “[A company must] evaluate data before plotting the projected numbers on [a] graph. [A company must] eliminate as much irrelevant data as possible and use only the most solid credible data: Don't try to craft a sophisticated model full of
Decision makers need the right amount of business detail (not a big dump of numeracy) to noodle out the FP&A team’s “what if” scenarios and figure out the best tactical path to revenue growth and profit protection” (Driscoll). A simply way the company could have caught their error would be if they occasionally reviewed and attuned their forecasts to make sure that business costs and opportunities to keep everything on track. In general “Pharmacy chains make long-term contracts with health insurers and others, including firms that operate Medicare Part D drug plans, agreeing to sell a range of drugs for set prices” (Siconolfi). This is what caused the mistaken forecast. Walgreens most likely had some sort of deal created with Medicare to keep prices relatively level. However if communication was scarce, Walgreens could have missed a message saying prices were going to skyrocket past their forecasted