3 keys to more accurate forecasting, no crystal ball needed

No one can claim to tell the future — but the best-equipped CFOs can tell what’s in store for a company’s next quarter.

But due to the inherent uncertainty, forecasting probably isn’t at the top of any CFO’s favorites list.

Makes sense: According to The Hackett Group, only one in three U.S. companies hit the “accurate forecast mark,” falling within 5% of actual results.

But world-class forecasting is only three steps away from any company:

1. Align forecasting with market dynamics. Most companies task Finance with compiling forecasts, and Finance then has to jump through hoops to gather internal data and numbers for the quarter, year, etc. The problem is that a department becomes so focused on internal numbers that it can’t afford to gather external intelligence from the market. Having a member of your team pull relevant outside numbers — from other companies, analysts, the Fed, etc. — will let you see how a forecast fits into the bigger picture.
2. Move to a rolling forecast. Finance departments handle most forecasting, and because they operate in a fiscal year, forecasts tend to pop up at year-end. That’s usually not how sales, production, etc. are scheduled. Only one-third of large organizations currently use a rolling forecast system, says Hackett, but switching over may keep your department’s processes in better alignment with how other aspects of the business are panning out.
3. Set accuracy targets, not forecast targets. Of course your company measures a forecast’s accuracy against results, but you can find significant improvement by setting targets. They’ll help your department spot factors that can throw a department off — once you know what’s affecting your numbers and how, you’ll be able to keep it from impacting future forecasts.