INDEX

100. Background
110. Control Environment
120. Background Information Request
130. Background Questionnaire
140. Related Programs

200. Control/Audit Process

210. Demand Forecast Roles and Responsibilities

210.1 Control/Audit Objective
210.2 Control Point
210.3 Risk Assessment
210.4 Questionnaire
210.5 Information Request
210.6 Audit Tests

220. Organizational Integration

230. Business Planning/Goals

240. Sales Opportunity Assessment (Frontlog)

250. Indirect/Partner Sales Demand Forecast

260. Services Demand Forecast

270. Predictability

300. References

400. Glossary
100. Background

110. Control Environment

Demand Forecasting is a key Sales and Marketing activity providing future revenue stream signals to
management, and in particular to Manufacturing so that it can coordinate and predict materials acquisition and
delivery of finished products. Good demand forecasting is also the key element in satisfying the external
information requirements the street and our shareholders and is the basis of many decisions effecting the
operation.

Sales and Marketing are the focal points for demand forecasts, requiring intimate knowledge of customers and
markets. By integrating the impact of key marketing programs and new products on the current portfolio, it
provides an analytical view of the business further down the road. The demand forecasting process usually
requires close participation with the Finance and Manufacturing functions to assess the financial and logistics
impact to the organization.

As Warren continues to change and reorganize itself, it is vital that clear roles and responsibilities are defined for
all levels of the organization party to the demand forecast process. The audit process should attempt to identify
the real focal point of the demand forecast effort and ensure the accountabilities and responsibilities are
communicated and understood by all.

The basis of all demand forecasts should be unconstrained demand. An unconstrained demand position assumes
full product availability and normal supply lead times. Risks and opportunities are then overlaid to unconstrained
demand to come up with a demand signal which best represents the likely revenue outcome for the period.

The critical activities inherent to a good demand forecast process requires a mechanism to monitor sales leads and
opportunities, and an assessment process which factors the likelihood of these opportunities turning into bids and
wins (Frontlog). There must also be a strong analytical focus on historical performance and trends, new product
and service assumptions, and an ability to assess the impact of marketing programs. Marketing must know its
competitive environment and be continuously in tune to customer buying patterns (channels) and desires.

A strong link into Manufacturing to communicate demand assures the coordination of supply to demand.

120. Background Information Request

• Demand Plans by Product Family in units and $s.

• Services Demand/Revenue Plans.
• Actuals versus Forecast variance analysis for the last six months (ensure reports show components of
NOR at a minimum).
• Manufacturing Ship Plan
• Order Backlog, Inventory information, market data (new products, competitive information, sales history,
trends, life-cycles).
• Minutes of Forecast Review Meetings.
• Advice packages
• Forecast commentaries

130. Background Questionnaire

• Who is responsible for approving the demand forecasts?

• What are the roles of the Regions and Corporate in the demand forecast process?
• Have your demand forecasts been accurate over the last six months? What caused the variances?
• To whom is the demand forecast communicated?
• Does a formal review process exist? Who sits on the review team?
• How has the management team addressed significant issues? Is there a corrective action plan in place?
• What are the input sources to the demand forecasting process?
 • Frontlog
• Backlog
• Manufacturing production data
• Inventories
• Market data
• Marketing programs
• Business finance data
• Historical sales data channel mix
• Product mix

200. Control/Audit Objective

210 Demand Forecast Roles and Responsibilities

210.1 Control/Audit Objectives

To ensure roles and responsibilities related to demand process are clear, understood by all and provide clear
accountability.

To ensure Management has clearly defined roles and responsibilities and that they are communicated throughout
the organization.

210.2 Control Point

Demand forecasts are being communicated to management and manufacturing in an integrated and
effective manner.

Every individual should know what their responsibilities are and for what they are being held accountable. Their
definition should be the sum total of management’s’ stated goals and expectations.

210.3 Risk Assessment

If responsibilities are not clear, the organization will not work efficiently to accomplish the desired end result.

If accountability is not defined, work may not be focused and desired results not achieved.

As a result, Management will not have the basic information required to manage operations. Manufacturing will
not be able to assess materials acquisition needs. Corporation is not predictable, losing shareholder confidence.

210.4 Questionnaire

What are your current role and responsibilities in the Demand forecast process? Are your roles and
responsibilities clearly defined and documented?

Explain the process used to develop the demand plan and forecast. What is the role of the Corporation, the
Regions and the Districts. What is the role of each Businesses?

Who owns the demand forecast process?

Do you have a formal demand plan/goal for which you feel accountable?

Are you or will you be responsible for Strategic Product Planning (Long Range)?

210.5 Information Requests

• Organization chart, process flow charts

• Job description (Roles/Responsibilities)
 • Mission statements
• Current Year demand plan

210.6 Audit Tests

• Review mission statements, charters, roles and responsibilities and ensure they are reflective of the
current organization structure.

• Review demand plan and ensure accountabilities are re defined and communicated at every level of the
organization - Sales people, account, country, territory, Area, Corporate, business, product segments.

• Flow out the complete demand forecast process. Review for areas of control, efficiency and
effectiveness.

220. Organizational Integration

The demand planning end forecast process requires cross functional integration and coordination to be accurate
and effective.

220.1 Control/Audit Objective

To ensure cross functional assumptions are integrated into the demand forecast process.

To ensure risks and opportunities are assessed from a marketing standpoint incorporating knowledge of sales
initiatives and marketing programs.

To ensure Finance provides a financial assessment and ensures integration to the financial forecasts.

To ensure Manufacturing provides supply and logistics impacts.

220.2 Control Point

Demand forecast review meetings with cross functional participation. Review meetings should be driven by
Sales, with recommendations emanating from:

• Product Marketing - campaign, program integration, market and competitive assumptions, product mix
• Finance - conversion of unit volumes to NOR, reconciliation to finance forecast
• Manufacturing - Backlog and inventory trends, supply issues, reconciliation of unconstrained demand to
constrained demand

Risks and opportunities to demand forecast are captured and shared to those who need to know.

The demand forecast process starts with an unconstrained demand position, which in turn is developed into a
constrained demand forecast incorporating Finance and Manufacturing recommendations.

Demand forecast reconciles to revenue forecast.

220.3 Risk Assessment

Potentially critical market, product, financial, or logistic related knowledge is missing from the demand plan and
is therefore not communicated to management and manufacturing. This could result in either the accumulation of
unnecessary inventory or lead to product supply issues.

220.4 Questionnaire
 • How are Sales initiatives and marketing programs considered in assessing risks and opportunities to the
demand forecast?
• How does backlog and inventory information get considered in the demand forecast?
• How does manufacturing supply issues get considered in the demand forecast?
• How do Corporate/Regional recommendations get considered in the demand forecast?
• Explain finance involvement in reconciling the demand plan to the revenue plan.

220.5 Information Requests

• List of sales initiatives and marketing programs

• Backlog information
• Inventory information
• Manufacturing recommendations
• Forecast commentaries
• Financial forecasts
• Unconstrained demand forecast
• Demand forecasts

220.6 Audit Tests

Review minutes of demand forecast meetings to ensure active participation of Sales, Marketing, Manufacturing
and Finance.

Review sales initiatives and marketing programs and reconcile to the demand plan. Assumptions should he
clearly documented either through commentaries or in meeting minutes. Sales and Marketing should have
developed an unconstrained demand plan.

Review last demand forecast and ensure current backlog and inventory assumptions are built into the plan.

Review financial forecast and ensure integration to demand forecasts.

Through interviews, assess the communication of risks and opportunities to the demand forecast. Are
risks/opportunities highlighted and communicated to the next decision point/management level?

230. Business Planning/Business Goals

230.1 Control/Audit Objective

• To ensure budget and operational goals are in place to support demand forecasting.
• To ensure Business plans are integrated into current year demand budgets.

230.2 Control Point

Management has defined and communicated the demand budget. The demand budget is consistent with the
business goals of the organization.

The organization is measured on the stated demand budget and accountabilities are clearly defined.

230.3 Risk Assessment

If budget goals are not in place, management cannot be certain it will meet its commitment to the Corporation.

230.4 Questionnaire

Did you participate in the budgeting process? Are you being held accountable to achieve specific budget goals?

Other than budget goals, what specifically are you measured against? Did you help set your performance metric?
Is your current year demand budget realistic? Accurate?

What are the business assumptions built into the demand budget? What information were they based on?

Does the demand budget ($ and volume) reconcile to the Business Plan?

Was the demand budget driven “tops-down”?

Are there any significant budget disconnects or variances between Corporate/Regions/Districts/Business? What
actions are taken to address these disconnects?

230.5 Information Requests

• Business Plan
• Demand Budgets/Actuals for current year

230.6 Audit Tests

Review Business plans and assess adequacy of integration with current year demand budget. Are there large
variances?

Review Corporate demand budget and ensure roll-out to Regions, Districts, Businesses has taken place. Ensure no
large disconnects exist.

240. Sales Opportunity Assessment (Frontlog)

Demand forecasts require an understanding of sales opportunities and the likelihood of these opportunities turning
into bids and wins. Frontlog or a derivative of it, enables the sales organization to track sales leads and assign
probabilities of success or failure throughout the general sales cycle.

240.1 Control/Audit Objective

To ensure demand forecasts are constructed through the evaluation of sales opportunities, estimating potential
revenue values and when these revenues might be received.

240.2 Control Point

Demand forecasts are based on an evaluation of sales opportunities assigned probability factors of win or loss.

The evaluation of sales opportunities are supported by actual and trend data in the development of the demand
forecast.

240.3 Risk Assessment

An inadequate bottoms-up opportunity evaluation process runs the risk of creating a region/district demand
forecast which does not meet the requirements of the customer. High level product and service demand
assumptions may not reflect client needs and lead to delays and ultimately customer dissatisfaction. Furthermore,
there may result an inaccurate timing of revenue, effecting predictability.

240.4 Questionnaire

• Are all sales leads entered into a data before review? Are all leads assigned to sales resources for
follow-up?
• What is the win to total bids ratio? Is this satisfactory? How does it compare with other businesses?
• How do you assign probabilities (weighting)of wins to total bids?
• How often do you review and evaluate sales opportunities?
• Do Sales have access to actual and historical trend data in making their opportunity assessments?
 • Does the demand forecast have a product cut by client and the expected timing of revenue?

240.5 Information Requests

• NOR Frontlog report.

• Top 50 Opportunities
• Lost/Open Opportunities reports
• Weighting factor analysis
• Demand forecast by client

240.6 Audit Tests

Review the region/district demand forecast and check for integration of frontlog analysis. Specifically:

• A review of total new business opportunities and a weighting of these opportunities (probability at win).
• A review of historical trends and Actuals for the assignment of the weighting factor.
• An assessment of the timing of the win.
• A product assessment of the win by client

Are the key activities in the Selling cycle being performed and used as control points for the validation of the
opportunity evaluation process? Ensure:

• All prospects/leads are assigned to sales resources and input into frontlog database or transmitted to
partners.
• Prospects/leads are qualified. Check for denied party list, credit checks, existence of budget (do they
have the $s?).
• Customer exploration. Do we want this sale? How can we match our offer with customer needs?
• Proposal development leads to quote to client. All quotes must be input into a database. There is a
tendency not to input lost bids for fear of looking bad. If all opportunities are not input, the
probability factor (% if wins) may be overstated, leading to overstated demand forecasts.
• Lost bids are reviewed and the cause of the loss is understood.

250. Indirect/Partner Sales Demand Forecast

As volume goes to the indirect selling channels, the demand signals emanating from our partners are critical in
developing a total demand plan/forecast. Our partners must be able to provide us with timely, product detailed
demand signals which satisfy the need of the demand forecast process.

Furthermore, the advent of International merchants within our selling structure requires a specific Pan-Territory
Demand forecasting focus to ensure the coordination and integration of their multi-country requirements.

250.1 Control/Audit Objective

To ensure indirect selling demand signals are incorporated into the demand forecast .

To ensure Pan-Territory merchants who ship across country/state boundaries are cared for in the demand forecast
process.

250.2 Control Point

Contracts are in place with our partners requiring them to provide demand forecasts on a systematic basis.

Partner demand forecasts have sufficient product detail.

An indirect sales demand plan is in place and is consistent with the region/district /corporate goals.

Pan-Territory merchants’ demand signals are identified and integrated into the demand plans of the receiving
geographic entity.
250.3 Risk Assessment

An inadequate indirect demand plan may result in product shortages and incite the partner to look elsewhere for a
more reliable supply source.

250.4 Questionnaire

• How often and at what level of product detail do you require the partners to provide their demand
forecast signals? Is it written into their contracts?

• How is the indirect demand signal incorporated into the overall regional demand forecast? What
information do you receive? What information do you distribute?

• What key information do you need to perform indirect sales demand planning?

• Do you have dedicated resources to perform indirect sales demand planning? If so, how are they
integrated with the other demand processes?

• Are you accountable for the indirect Sales demand budget7

• How are new partners and their demand potential incorporated into the demand forecast process? Is an
opportunity assessment being used?

• How are Pan-Territory merchants with their specific multi-country needs cared for in the demand forecast
process?

• What product details do you require from your partners?

250.5 Information Requests

• Indirect Sales Demand Process Flows

• Indirect Sales Demand Budget
• Sample of existing Partner contracts
• Pan-Territory Merchant demand budget
• Regional and Corporate Channel recommendations/directions
• Forecast commentaries

250.6 Audit Tests

Obtain a sample of Partner contracts and ensure demand signal requirements are clearly stated. These
requirements should cover the needs of the current demand forecast process. Ensure product information
requirements, timing, units, dollars are addressed.

Review the Region/District demand plan and look for indirect sales plans. Assess the adequacy of the results by
reviewing actuals vs. forecast reports. Do the commentaries adequately explain the variances?

Review the actual forecast process against the Process flowchart. Does the actual process correspond to the
documented process?

Review the Pan-Territory merchant demand process and plan. Does a process exist to ensure the multi-country
supply requirements of these merchants?
260. Service Sales Demand Forecast

260.1 Control/Audit Objective

To ensure the Service demand signals are adequately forecasted and integrated into the Demand Forecast process.

260.2 Control Point

A database containing precise up-to-date information of new and existing contracts exists in order to calculate the
annuity revenue streams. The database should be able to provide a view of contract expirations and renewals,
cancellations, changes in terms and conditions and any other significant adjustments to the existing contract base.

Per event business, or the value of non-recurring business in recognized.

New business opportunities are identified and assigned probability factors of win or loss.

Warranty revenue from product sales are identified and integrated into the demand/revenue forecast.

260.3 Control Risks

An inadequate and inaccurate Service demand forecast may result in service delivery delays caused by resource
and materials shortage and lead to customer dissatisfaction. Furthermore, there may result an inaccurate timing of
revenue, affecting predictability.

260.4 Questionnaire

• Which system do you use to identify the existing contract base and the subsequent modifications to these
contracts? Is it a common system?
• What are the main factors affecting the demand forecast process? How do changes in competition,
economic conditions, technology, customer preferences, business practices, etc. impact the business?
• How do you identify per event/non-recurring business?
• How is the product warranty transfer incorporated into the demand/revenue forecast?
• How do you identify the unbundeling of installation revenues from Product warranties?
• How do you incorporate the impact of product migration/technology changes Into the demand/revenue
forecast process?

260.5 Information Requests

Service Revenue Equation Report - Report should show:

• Existing contract and warranty base

• Contract and warranty expirations

• Contract and warranty renewals

• Contract losses - price/equipment

• per event business

• Contract and warranty addition

290.9 Audit Tests

Obtain the contract revenue report and ensure new and lost business have been identified and added to the existing
contract base. Reports should show normal expirations and renewals, pricing changes to renewals, changes in
terms and conditions.

Obtain the warranty revenue report and ensure new and lost business have been identified and added to the
existing warranty base. The unbundelling of installation revenue from product warranties must be viable and
captured as non-recurring revenue.

Ensure there is a per event business demand signal. This is the identification of all non-recurring business, e.g.
per call, sale of spares, projects, installations, etc.

Ensure there is a new business demand signal. This is the identification of new business contracts and upgrades
of existing contracts, e.g. winbacks, upselling, new contracts. This does not include contract renewals. Ensure an
opportunity assessment process exists assigning probability factors of wins.

270. Predictability

270.1 Control/Audit Objective

To ensure management controls are in place to ensure the accuracy of the demand forecasting process.

210.2 Control Points

Management has defined the demand forecast rules in terms of timing, product and requirements, forecast
window, and accountabilities (who).

Management has a monitoring process in place to measure the overall effectiveness of the demand forecasting
process.

Management has issued forecast accuracy targets.

The business is meeting forecast

270.3 Risk Assessment

If the demand forecasting process is inaccurate, manufacturing may under or over estimate demand resulting in
Warren’s inability to meet Customer needs or an increased stockpile of finished goods inventory.
Manufacturing may not rely on field demand signals and attempt to forecast demand itself.

Revenue predictability may be unsatisfactory leading to loss of shareholder confidence.

270.4 Questionnaire

• How do you monitor forecast accuracy?

• How do you define acceptable forecast accuracy targets?

• If the forecast is missed beyond acceptable ac;,;.@.cy targets, .ha@ management actions fir# t.k.l. to
currect2

• ,qhere 1. the forecast at tiak7

 • AL what point are the risks ld"tified and by whoyn? )iow are they ,,--,inicated up And down the
orgarilzatinne

• the business tr..king deiiverable7

• @@-t are the de..@d forecast deliverable .,,d l@.. are they @racked?

• ,,Vhat percentage of the forc-.ca3t are "stratc.@h q.dls"7

• What @arionav analysis are performed?

• TX
• Forecast accuracy torqets
• .anA forecast Information requirements - who, h.t level, window, fr.q.e.cy,

• Fo@@@st, actual&, and budget

• Forecast and actual --@e,iLnries

• VAriaricw analysis

270.49 AMZT =Ts

li@@ie- the demand forecast objectives ard rq@irements and ensure ,@,.y are SUPPOtLqd by the organizational
structure and business ,,;)station&,
Review result$ of prior dwmand for ... st and assess forecast accuracy, Review metrics and actualg, in particular
forecast accurACy. Do negative trends result in the development of corrective action pl.na7

M..Iew the accountability of the lemand forecast and the key players involved, what is the impact If the forecast 1.
not mot?

Review the organization's foT@,,aAt submission. How was it verified nd ensure tim.lin... f their verification.

What pp@.val levels -@,- required In the d ... nd fore@..t7

300
400 @
Demand BLidget/Plan: The demand goal of an organization d.fln.d through the planning proc---. Demand
budgets, are fixed nn an annual basis and should provide unit and dollar values by product family as a mini....
Demand bwdqets are usually cut by geography and Business unit,

Demand Forecast: Sometimes referred to as the 'Redbook-0 it is the current outlook of the demand position, taking
into account any vo ume variances La the original demand plan.

Unconstrained Demand: Demand based solely on market potential and needs. Does not take into account any
upply issues.

Frontloq: Corporate data base used to Lore sales leads and opportunities, OpportAnities are tracked
through the sales cycle until they are either won or lost. Generic term used to identify a sales Opportunity
ABAOS&MenL
jam i994

I'he urreD( Digital operating environment has Ausines. units interacting with To,,ritories and cou.triox. The 1010 t
the Business Units In t:))e demand forecast process IA Lo provldc. a specific product or service via. of the
demand. The terrirory/,.ountry acts as an integrator and consolidator of the various product and service plans,
giving a geographic but of the ,IeManIt, The integration of the product and service signals into @n overall
territory d6m,,rid forecast is .,is of the ain control points which ensures the viability of the plan and the alignment
to the Finncial forecasts.

['lie Business Unit is the real foc.1 pol.L of the ctemrd f.rec.ar. ,effort. They -re ultimately accountable to the
Corporation and the Board to deliver revenue and profit. AS a result, the role$ dn,i responsibilities of Corperat#.-,
Territory and Business Units ,elatlv* to the demand forecast must. be wall defined. Rusin.sv must be @lear to
ensure there are no overlaps in the

to--cast process. Audit Program REFI

Control Points
C-ORPORATE HFADQUARTERS

1).fine RQles and R-@pon-ibiliLies 210.2

Provide Clear Account.bilities 210.2
Demand Plannir.9 230.2
Definition of business rules 270.2
t)ofinilion of monitoring process 270.2
Forecast accuracy targets 210.2

A@EA
[I emand siqnals to Manufacturing 210.2

Demand forecast review meeting. 220,2

I)emaT)d FCST reconciles to Finance FCST 221).2
O@gantrational Integration 220@2
oeman,i Planning230.2
Historical @voluation/r,onds 240,2
Pan Territory Distributors 250.2

@'@RRITOKYI('OUNTRY

D.@nci Iqnal 9 to M.nuta-turinq 210.2

.,idles e@dluAtLon -f opportunities 240.2
C)rga.lzationhl integration 220,2
1)@@nd Planning 21@.2
Demand forecast review meetings 22012
identity risk. and opportunities 220.2
Unconstrained demand plan 220.2
Do.and FCST recociles to Finance FCST 220.2
)iist.rical evaluation/trend. 240.2
a*** &4$,tl ibt@l Us* @7 *tlklb
CONTROL PROGRAM DISCIPLINE: SALES & MARKETING PAGE 16 OF 19
REV. 1.0
SECTION: DEMAND FORECASTING ISSUED: 27-OCT-97

lctdlrik,-t demand -Agnala -@aluati.R 2 50 12

Service Demand/Revenue evaluation 260.2

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