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Planning and Forecasting

Tackling Forecast Bias: Signals and Noise

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

The average level of MAPE for your forecast is 25%. So what? Is it good or bad? Difficult to say.

If it is bad, what should you do? Improve…obviously. But how?

 The problem with simple measures of forecast accuracy is that it is sometimes difficult to work out what they mean and even trickier to work out what you need to do.

 Bias, on the other hand, is a much easier thing to grasp. 

Systematic under- or over-forecasting is straightforward to measure – it is simply the average of the errors, including the sign, and is clearly a ‘bad thing’. Whether you are using your forecasts to place orders on suppliers or using them to steer a business, everyone understands that a biased forecast is a bad news. Also, it is relatively easy to fix; find out what is causing you to consistently over or under estimate and stop doing it!

Steve Morlidge is an accountant by background and has 25 years of practical experience in senior operational roles in Unilever, designing, and running performance management systems. He also spent 3 years leading a global change project in Unilever.

He is a former Chairman of the European Beyond Budgeting Round Table and now works as an independent consultant for a range of major companies, specialising in helping companies break out of traditional, top-down ‘command and control’ management practice.

He has recently published ‘Future Ready: How to Master Business Forecasting’ (John Wiley 2010) and has a Ph.D. in Organisational Cybernetics at Hull Business School. He also cofounder of Catchbull, a supplier of forecasting performance management software.

Why Bother with Business Forecasting? From Error and ‘Accuracy’ to Adding Value

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

As far as I know we are not legally required to forecast.

So why do we do it?

My sense is that forecasting practitioners rarely stop to ask themselves this question. This might be because they are so focussed on techniques and processes. In practice, unfortunately, often forecasting is such a heavily politicised process, with blame for ‘failure’ being liberally spread around, that forecasters become defensive and focus on avoiding ‘being wrong’ rather than thinking about how they can maximise their contribution to the business.

This is a pity, because asking fundamental question ‘how does what I do add value to the business’ could help forecasters escape the confines of geek ghetto and the dynamics of the blame game and reposition the profession as important business partners.

So why do we forecast? Let’s answer this question by considering the alternative.

Steve Morlidge is an accountant by background and has 25 years of practical experience in senior operational roles in Unilever, designing, and running performance management systems. He also spent 3 years leading a global change project in Unilever.

He is a former Chairman of the European Beyond Budgeting Round Table and now works as an independent consultant for a range of major companies, specialising in helping companies break out of traditional, top down ‘command and control’ management practice.

He has recently published ‘Future Ready: How to Master Business Forecasting’ (John Wiley 2010), and has a PhD in Organisational Cybernetics at Hull Business School. He also cofounder of Catchbull, a supplier of forecasting performance management software.

8 Business Measures for Effective Corporate Performance Management

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

 

A number of years ago I was contacted by a manager in the Health profession and asked if I could tell them 25 measures they should be tracking. I was a little surprised and thought to myself that if they didn’t know what those measures were given that they worked in the industry, then what chance would I have in coming up with the right ones.

In reply I asked them what was the purpose of the organization, as in my opinion, the measures ought to be associated with what they were trying to achieve. But this didn’t help. They were looking out for a list that they could then track and presumably say that they were now adequately measuring performance....

A New Era for FP&A

By Larysa Melnychuk, Managing Director at FP&A Trends group

We live in an era with an interconnected global economy, where constant change and uncertainty are taken as a given but planning for such an environment is not easy. Flexible and dynamic financial planning and analysis (FP&A) can help firms to cope. The financial crisis  affected many companies and some of them became all too familiar with the spectre of unexpected ‘black swan’ events or ‘perfect storm’ market conditions that adversely impacted their business. Those that survived understand the value of FP&A. 

Some organisations have not had enough time to re-align their cultures, systems and processes to suit the ‘new normal’ conditions, but they should as most chief financial officers (CFOs) and other finance professionals know that the ability to forecast results is the number one concern of modern business.

Rolling Forecast: 7 Factors for Success

By Larysa Melnychuk, Managing Director at FP&A Trends group

The concept of a Rolling Forecast is a hot topic in FP&A at the moment. Many companies attempt to implement it, but not all of them are successful. Statistics suggest that one in five of the organisations that implemented rolling forecasts recently have since abandoned them, because they proved to be more complex than initially expected. Additionally, they didn’t find enough value in this tool to continue using it.

However, a Rolling Forecast can be a powerful tool for FP&A if used correctly..

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