Much like target shooting with a bow and arrow, for the archer to consistently hit the bullseye, he or she must have an established, proven and repeatable routine.  The same can be said with a forecasting process.  It is imperative to have established a forecasting process and routine to neutralize obstacles or improve your chances of hitting the bullseye. Or come very, very close!  

Reach your target

The following are some basic process steps which enhance your ability to consistently reach your targets. 

  1. Set the right baseline – setting the starting point for your forecast is critical as it will be the basis from which all growth and/or decline is measured from.  
  1. Make adjustments – as conditions change, it is vital to make adjustments in order to keep on target.  
  1. Change the process – while many companies remain wedded to the old way of thinking – limiting forecasting to once or twice a year – the trend is moving towards more frequent forecasting.  The more often you forecast, in combination with how close it is to when a change occurs, the more accurate your forecast.  For example, a key competitor moves into one of your markets and drops its price.  When should you forecast the impact of this change? Do you wait until the next forecast cycle (which could be months away)?  Or do you immediately assess the potential impact on your volume, price and sales to update your forecast?  The trend, as noted by FSN Modern Finance Forum on LinkedIn in its 2017 Global survey “The Future of Planning, Budgeting and Forecasting”, is the volume of companies forecasting more than twice a year is up to 71%, from 56% the previous year.  They believe this is being driven by both volatile market conditions and transforming technologies that support more frequent and timelier forecasting process. 

forecasting process

Design your forecasting process

Previously, I noted that more and more companies are moving to frequent and timely forecasting.  The most effective way to improve forecast accuracy is to do it as soon as a change has been identified and run multiple scenarios of the expected impact.  So, what does it take to have a continuous planning process?  It means your people, processes, data and technology must be aligned and ready to support it.

The following are some key considerations when determining your readiness to move to a continuous forecasting process:

  • Top Down Readiness – moving to a continuous planning process will not work without top-down support. This means the change and reasons for it are communicated to everyone who plans.  It will require all planners to be evaluated for their change readiness and additional communication and/or training is provided to close any gaps.
  • Continuous Forecasting – as I noted earlier, the best time to reforecast is when things change or are anticipated to change. This means there are no predefined times.  Such as month or quarter end, when a new forecast needs to be submitted.  Instead, the people closest to the change, forecast continuously.
  • Technology Capability – moving to continuous planning model that allows every planner to make and model changes. This cannot be done using excel and/or other rigid planning tools. The planning tool must have the capability to connect planners across departments, functions, business units and geographies.

So how do you get started?

Consider engaging a trusted partner, like eCapital Advisors, to complete an assessment of your forecasting process, data sources and technology.  Our experienced, industry-relevant consultants work with you to determine the optimal forecasting solution to meet your needs.  A typical assessment is a 4-step process and provides a detailed roadmap for your company to follow:

Forecasting process

Now is the time for your company to significantly move your forecasting forward.  Leave behind the old forecasting process and move towards continuous forecasting and improve your accuracy!

 

Scott Wallace

Senior Business Advisor with over 37 years of experience assisting medium and large sized global organizations with development of their Financial strategies and enablement of those strategies through functional and company transformation, process re-engineering and technology deployment.

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