When I think back to how some of the leading organizations in the world have traditionally approached forecasting, I conjure up images of anxious-looking men and women in grey suits pulling together piles of paper as they make revision after revision to the annual budget. Because market volatility and uncertainty don’t tend to provide businesses with advance warning, an annual budget can be rendered obsolete in a matter of weeks. And it’s not just unexpected political occurrences which can impact forecasting. The global business landscape is littered with examples of disruptive events which have caught organizations off guard.
Given this, it’s hardly surprising that 73 percent of finance leaders surveyed in late 2016 said they have moved to “continuous planning,” to be able to revise and rework forecast predictions in line with business and market changes. The benefits speak for themselves, with businesses that have adopted continuous planning claiming to be almost twice as likely as their peers who haven’t done so to accurately forecast earnings between plus or minus 5 percent.
Adopting a continuous approach to financial planning also breeds credibility within the organization, with respondents to the same survey three times more likely to report increased stakeholder confidence. The icing on the cake is that finance leaders stated that a continuous approach meant they were four times more likely to be able to respond more quickly to disruption in their market.
Not all current approaches to forecasting meet these standards, and many organizations are re-running forecasting on budgets that are already out of date—a recipe for inaccurate data and reporting mistakes.
Here are three key areas that finance professionals can focus on to improve the quality of their planning and forecasting.