Refine Financial Forecasting Practices
While the process of forecasting may be equal parts art and science, highly evolved enterprises use a solid, collaborative process based on timely, aggregated data for generating accurate business forecasts.
Three standard aspects come into play when generating a forecast, according to a white paper from CFOWorld.com and IDG Research Services:
- People;
- Processes; and
- Technology.
The right people must provide the right input, and finance executives charged with preparing a forecast must aggregate that input using the right technology. Each of those aspects must be involved to ensure forecasts are as accurate as possible.
“During the past 10 years, we’ve seen budgeting processes evolve into forecasting, using automated software processes and better business processes,” says Lance Holbert, practice leader for global software firm SAP, the paper’s sponsor.
For those preparing forecasts, there’s one fundamental distinction to recognize: the difference between an organization’s goals and its forecast. Both are forward-looking estimates, but don’t confuse the two.
“You shouldn’t build a forecast around a goal,” says Holbert. “A lot of people manufacture a forecast that’s close to their goal. That’s sandbagging behavior. You have to separate the goal from the forecast.”
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