Like planning, marketing, and hiring, forecasting has always been one of those business essentials. But recently, things have changed. Many companies are finding themselves forecasting more frequently. Uncertainty brought about by you-know-what (yes, the pandemic) is making business projections even more important and commonplace. Also, companies are forced to update their risk models more regularly.
And it is not just finance teams that are bearing the brunt of the extra workload. 73% of businesses surveyed by Trinity Bridge Asia in partnership with CFO Connex said forecasting was a major task for their department heads and finance team, or a task that required the attention of the entire business.
While the purpose of forecasting is to help an entire business to plan for the future, few companies want or can afford for it to take up resources in every department. But that’s what is happening. So how can you stop your business projection exercise from becoming an all-embracing, time-consuming, resource-zapping business necessity?
Here we answer the question posed in the title and look at ways to make forecasting easier for your business:
Let’s look at each of these points in a bit more detail.
The pandemic has forced so much change in so many areas of the world, it’s hardly surprising that your forecasting processes could become another of its side effects. To cope with changes enforced by COVID-19 now and going forward, your business might need to become one that forecasts monthly instead of quarterly, or weekly not monthly.
Besides forecasting more frequently, you may want to consider different scenarios based on a number of assumptions. Then, each period, you can revisit these assumptions and further develop your scenarios and adjust the forecast.
Whatever suits your business best, it is important that your forecasting is flexible enough to react to changes, ensuring you get a more accurate reflection of the current state of affairs. Tim Wieringa, a Singapore-based consultant for Digital Transformation and Operational Excellence at Hive17 Consulting, suggests that you might want to give more control and ownership to the non-finance managers, let them play an active role in the process.
For example, the commercial team can directly input their sales forecast and the forecasting tool is automatically updated. The finance team can focus on providing the platform, and they are released from some pressure.
Managers and departmental heads will obviously do their best to predict what might happen several months down the line. But nothing beats forecasting that is based on facts. Rolling your forecasts more regularly, even on an ad hoc basis, can help you better align your plans and boost their accuracy.
Again, this will be based on several assumptions and considering different scenarios. Rolling forecasts will allow your business to pivot when required, so big decisions are based on what is happening now, not what happened at the same time last year.
Don’t just forecast for the sake of it. Always keep the objective in mind!David Newton
Forecasting is all about predicting your financial future. The organization should create a common understanding that the key objective of forecasting activities is to enable business decisions. The information revealed in forecasts creates an understanding of the potential impact of changes before they come into effect.
Keeping this objective clear in mind will underline the importance of forecasting and enable you to integrate forecasting activities into structured decision-making processes.
In addition, clear overarching business goals allow everyone involved to focus and scope the forecasting models. For example, if you want to reach out to new customer segments, the forecasting tool needs to consider this – you want to ensure, forecasts are based on informed facts, not random guesses. It is often useful to forecast best case, worst case and most likely case scenarios, so your organization is aware of and prepared for almost every eventuality.
Collaborative modelling tools beat spreadsheets in most corporate settings.Duane E. Presti
The research we quoted earlier reveals that a stunning 90% of businesses are relying on Excel to help them with preparing their forecasts. The question is why?
While Excel has a role to play, it is neither a collaborative nor multi-dimension modelling tool. It is not designed nor can it be expected to support the multiple forecasting scenarios many businesses are being expected to deliver.
Duane E. Presti, CEO of PARIS Technologies, specializing in multidimensional, multi-user planning solutions, noted that “virtually all our customers had been laboring with an over-stressed Excel-only system for all their planning requirements.
In fact, ‘over stressed’ is too mild a term—more like ‘in the last stage of critical failure,’ with catastrophic implications for systems they needed to guide them towards future success.”
So, what is the alternative?
With so much importance placed on forecasting, it would make sense for businesses to employ smart processes and sophisticated software. But that’s not what’s happening. The Trinity Bridge survey revealed that only 10% of businesses are using specialist software to support the complexities of forecasting.
Is the digital transformation of the finance function bypassing forecasting at a time when forecasting is under the spotlight like never before, becoming one of the most vital requirements of the function? It would appear so.
Yet there are software solutions available now that every business can afford. They offer high level security and cost savings, generating accurate predictions with less chance of human error. And they can work in tandem with good old Excel if you need them to.
“We have always featured ‘the everyday spreadsheet’ as the user tool of choice in our offerings,” Presti remarked, “but with Excel backed by a highly efficient cloud-based modelling environment—one that ensures dynamic connectivity to other BI and visualization products, so all users, not just finance staff, will benefit.”
Open and clear communication removes unnecessary resistance in the forecasting process.Tim Wieringa
Presti’s comment implies a critical and often overlooked aspect to successful forecasting: that all departments become involved in the forecasting process when they need to be.
While business managers take ownership of their part of the tool, ensure that they are not overwhelmed with the forecasting activities. For example, get your operations teams involved in delivering a roadmap that takes into account the anticipated changes revealed by forecasting. Open and clear communication removes unnecessary resistance in the forecasting process.
Recommended reading: Finance Business Partnering: The Collaborative Frontier
How many organizations foresaw the pandemic? Few, if any, forecasts made before early 2020 would have planned for a scenario in which businesses across the world would be forced to cease trading and office staff made to stay home.
But it happened.
What is the next unexpected event around the corner? Will there even be one? Whatever the case, the forecast for forecasting shows it playing an increasingly important role in business success in uncertain times. When considering different scenarios, stay close with your external and internal customers – they will provide viable information and allow you to validate your assumption.
With careful planning and judicious uptake of new software solutions, your business can become one of the few that make forecasting a quick, focused and valuable process.
Forecasting is essential. But when you forecast for the sake of forecasting, then it becomes a drain on your resources. Keep the goal of forecasting in mind! Properly done, it will facilitate accurate decisions by the business and accelerate positive change.
Let Volve support your forecasting process and help you focus on your business. From sales to human resources to finance operations, management can look forward to shifting resources from repetitive manual practices to realizing strategic goals that create more value and deliver higher returns.
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