In Business, what is a Backlog?

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.

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.