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In Business, what is a Backlog?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 27 October 2016
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A backlog is an accumulation of work which has yet to be completed. There are ways in which backlog can be tracked to gather data about the projected future of a company. Potential investors are often interested in knowing about the backlog a company has on its books as this information can be used to make estimations about future earnings, since it reflects work which has not yet been completed which will generate income once it has been finished.

One example of a backlog is unfilled orders. This type of backlog is very easy to track because a company can simply keep records of all the orders it has received and take note of which ones have not been finished. A high backlog of unfilled orders indicates that there is demand for a given product or service and that the company has guaranteed buyers for at least the amount of material in the backlog.

For example, if a car company has a backlog of 100,000 orders, it means that 100,000 buyers are lined up for cars it produces, which indicates that it can project these as potential sales and profits. By contrast, if the car company is overstocked with cars, it means that there is less demand and the company is sitting on unsold units. This would suggest that the company's future is not as bright, because it cannot even find buyers for the products it already has.

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Individual workers can also develop a backlog of work which needs to be completed. This may be integrated into employee assessments; if someone continually has an accumulation of uncompleted work it suggests that this employee is not able to complete tasks efficiently or is being burdened with too much work. Being able to balance items in a stack of tasks is also important for employees, as they must determine which work should move to the head of the queue and which items can wait.

Companies may report information about their backlog for the benefit of investors who would like to get an idea of projected sales in the coming months or years. This information is often reported in the media as well because it may be a general topic of interest which is used to provide information about economic conditions. High volumes of unfilled orders in numerous companies suggest that the economy is robust and companies are receiving lots of orders for their products, while high overstock rates indicate that the economy is more sluggish and people are reluctant to buy.

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SkyWhisperer
Post 2

Backlogs happen in every industry. In technology it’s common to use a scrum product backlog which is used for project management at all phases of the product life-cycle. This is basically a list of things to be built. Each item is given a priority and the project manager can use it establish timelines for completion and milestones. It’s basically a glorified to-do list if you want to look at it that way. Sometimes the easiest items get tackled first if they give a decent ROI (return on investment) for the time it takes to get them done.

Charred
Post 1

Investment analysts usually look at a company’s product backlog orders as one of the signs of how healthy a company is doing. Analysts also use these figures to make industry-wide projections as well, to determine for example how the entire industry that a company participates in is doing. I don’t do this kind of analysis myself but I understand this is how analysts draw their conclusions.

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