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Planning and Forecasting

Evolving FP&A: What are the Key Planning Activities?

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

Believe it or not, organizations do not collapse if they don’t have a plan or a budget! If a business is already established then two things will impact future results, irrespective of what is planned:

Organic growth. The momentum of current activities will continue to generate costs and sales. The value of these is fairly easy to forecast in the immediate future but as time goes on the upper and lower limits could be diverse.

Dynamic FP&A: The Role of Planning

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

We live in an unpredictable world where the future is uncertain. If it was then we would all make a fortune by making strategic ‘bets’ on certain outcomes – we would know what products and services to back, what level of stock and staffing to have, and when and where to market our capabilities for maximum effect.

But the world is not like that. When we use the word ‘unpredictable’ or ‘volatile’, what we are really saying is that the mechanisms we use for predicting the future are inaccurate. Things happen that we either didn’t foresee, or that impacted differently from what we expected. Most of these ‘things’ are typically external and beyond our control. For example, a competitor changing their price, a company introducing a disruptive technology, the impact of natural events such as the weather, a change in government policy, a significant change in the local economy, or a combination of any of these. However, senior executives are expected to navigate their organizations through all of these challenges. They are charged with ensuring that limited resources are allocated to the right products and services for maximum return. That the organization is moving towards long-term strategic goals and to provide a reasoned explanation as to when, where and how it expects to get there.

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.

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.

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