The business economic environment as we know it is never the same all the time. Volatility is the norm. Commodity prices, foreign exchange rates, interest rates, inflation rates, population figures, unemployment figures etc are constantly falling and rising. All these indices have a bearing on business performance and with such high levels of volatility, the ability to make accurate predictions and act on them differentiates the winners from the losers. During earnings reporting periods, for example, it’s not rare that we hear news of certain organisations meeting their forecasts and others failing to meet their estimates.
Within various organisational departments, there are massive teams busy forecasting business performance and other indicators. It is true that no one can accurately predict the future, but then, it is better to be close to the future than be far away from it. For example, having an idea of who your most profitable customers or products and the revenues they bring is better than not knowing at all as this helps with planning and deciding on whether to channel extra funds to other investments.
Understanding what makes a really good forecast is key to meeting business targets and enhancing your competitive advantage.
• Forecasting is about decision making and understanding the businesses future. It’s about creating and shaping the organisations’ future.
• The frequency of preparing business forecasts should be driven by the rate of change in the key variables such as revenues, labour costs, travelling costs, advertising costs, telephone and other operating costs.
• Business forecasts should be free from bias and should have an acceptable level of variation.
• The accuracy of business forecasts depend on the ability of your business to properly keep records. There should be readily available data on what has occurred in the past and what the situation appears to be in the present.
• Good forecasts are not based only on accounting figures but also take into account local and global economic activities.
• Forecasting and planning are closely related. Your business forecast should come with plans of what you intend to do to achieve your targets.
• Do not rush to paint a picture of the period ahead without analysing all the facts. Have different possibilities and analyse your business under the worst case scenarios and have strategies in place to weather those conditions.
By following the approaches above, you are placing your business in a better position to seize future opportunities and avoid suffering huge loses in the future. Planning to react after the future unfolds is insufficient, instead, you need to act ahead of time so as to shape the future.