Businesses now employ cash-flow forecasts, dynamic forecasts, financial forecasts, production forecasts, revenue forecasts, rolling forecasts, sales forecasts, soft forecasts, static forecasts, and other means of data-driven crystal-ball gazing.
“Corporations have come to rely on forecasting in ways that were never imagined previously”, says Kathleen Hoffelder of CFO.com.
Daily business
For some executives, forecasting is no longer just a supporting analytical tool. Instead, the process has become so central to firms’ overall growth plans that the way it’s done has become an essential part of the business itself.
Companies have come to rely on their forecasts as working documents throughout the year, while updating them on a daily basis. “No longer do multiyear plans merely molder in desk drawers, gathering dust”, Hoffelder signals.
Challenges
Paul Schuster, treasurer and vice president of corporate finance at Trustmark Insurance, uses forecasts to continuously understand and manage the key drivers of his business. “We are forever looking at regulatory issues, product-design issues, competitive pressures, etc. We are continually looking ahead and only periodically peeking at the past,” he says.
But determining which details are relevant in forecasting is still a challenge. Hoffelder: “Forecasting always tries to include as many variables as possible; it wouldn’t be much of a forecast if it didn’t. But some corporate executives take that too far and put extraneous variables into the mix.”