Forecasting Quality

A New Approach to Business Forecasting

By Steve Morlidge, Business Forecasting thought leader, author of "Future Ready: How to Master Business Forecasting" and  "The Little Book of Beyond Budgeting" 

Many millions of people are stuck with the habit of smoking. They know its bad for them and it will eventually kill them, yet they continue. They may have tried to quit many times but they are stuck in a rut. Experience has shown that to successfully break habits you must stop things as well as start doing new things.

The current practice of management exhibits some very bad habits. One key cause is an underlying philosophy of “command and control.” Managers know it is bad for them and it kills motivation, initiative, flexibility and innovation on a daily basis.

The 11 Commandments of Supreme Forecasting

By Timo Wienefoet, Managing Partner at IMPLEXA GmbH

The Superforecasters were assessed according to Brier scores. A certain mindset combined with a resolute feedback environment led to extraordinary results. Philip Tetlock, author of "Superforecasting: The Art and Science of Prediction", came up with 11 methodical commandments that can be followed to attain  supreme forecasting skills.

      Quality of FP&A: Managing Biases within Financial Analysis

      By Karl Kern, Founder/President, Kern Analytics LLC

      One can find many definitions of financial analysis.  Investopedia defines financial analysis as “the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment.”  Wikipedia defines financial analysis as “the assessment of the viability, stability and profitability of a business, sub-business or project.  Practitioners of financial analysis may have their own definitions.  As a practitioner of financial analysis, my definition is “the process of learning about a business in order to understand what it is doing and where it is going.”

      I like to emphasize the word “learning” within my definition because learning is not a perfect process.  Human beings will take steps within the process that fail to acquire the necessary insight into what a business is doing and where it is going.  The steps that lead to failure within the learning process are called biases.  Biases are real within the financial analysis.  One cannot eliminate biases but one can manage them.

      Two Proven Techniques to Minimize Optimism Bias in Financial Planning & Analysis

      By Karl Kern, Founder/President, Kern Analytics LLC

      One of the realities that FP&A professionals need to realize is people tend to be too optimistic in their financial plans.  People tend to expect higher revenues, lower expenses, or less time to recover the amounts of their investments.  Psychologists label these expectations as optimism bias.

      As an accountant, I am guided by the conservatism principle.  The conservatism principle frames financial reporting around errors.  The errors that I don’t want to make is overstating assets and net income.  Making these errors create an impression that I am presenting a situation that looks better than it is.  At its extreme presenting a situation that looks better than it is may be perceived as a fraud and this perception damages the most important qualification of an accountant, integrity.

      Best practices in Rolling Forecasts

      By Elena Kiristova, CFO Russia and CIS at Groupon

      Everyone wants a crystal ball to be able to peer into the future. For businesses, that desire becomes a necessity because having a vision of the future allows for better and more strategic decision-making in the present.

      A rolling forecast simply means that each quarter or month, a company projects four to six quarters or twelve to eighteen months ahead.

      This allows executives and key decision makers to see both a financial and operational vision of the future. It also helps them assess next steps in their execution of their plan, understand critical pivot points in the plan and better judge the impact the economy may have on their plan.

      I have seen rolling forecasts replace annual planning cycles with a continual planning process that results in more regular business reviews that look to the future. These reviews enable managers to understand problems, challenges and trends sooner and improve their proactive approach to those problems, challenges and trends.