Skip to main content
Home
The Online Resource for Modern FP&A Professionals
Please register to receive the latest FP&A news, updates and tips Login

Main menu

  • Home
  • FP&A Insights
    • FP&A Trends Digest
    • FP&A Trends Research
    • FP&A Trends Insight Paper
    • FP&A Trends Survey
    • Short Videos
    • Our Contributors
  • FP&A Events
    • International FP&A Board
    • FP&A Trends Webinars
    • Digital FP&A Circles
  • AI/ML Committee
    • Introduction
    • Members
    • Resources
    • Meetings
  • FP&A Tools
    • FP&A Trends Maturity Model
  • About Us
    • Company Policy
    • Privacy Policy
    • Editorial Guidelines
    • Our Ambassadors
    • Our Sponsors & Partners
    • Contact Us
image
Uncertainty in Rolling Budget Forecasting: A Critical Role for Informed Judgment
September 14, 2018

By Hans Levenbach, PhD, CPDF author of Change & Chance Embraced

FP&A Tags
Financial Planning and Analysis
Planning and Budgeting
Modelling and Forecasting
Forecasting Quality

Statistical approaches to forecasting can provide a framework for creating rolling budgets to which analytical skills and judgment can be applied in supporting a sound budgeting process. Users of statistical forecasting models have come to realize that their models can only be relied upon to provide a first approximation — a set of consistent forecasts which then must be ‘massaged’ with intuition and good judgment to take into account those influences on economic and business activity for which history is a poor guide.
    
In rolling budgeting applications, it may become apparent from creating rolling simulations that the actuals have exceeded the estimates for several successive periods, or that the forecasts for a given period underpredict the held-out actual value. Experience suggests that a model’s projections should be modified (adjusted upward or downward) by a given amount or percentage to account for the current deviation (bias) and the forecaster’s expectation of whether that forecast profile pattern will prevail.

Subjective judgment in forecasting practices should be based on all available information, including changes in company policy, changes in economic conditions and government regulations, and contacts with customers. Such judgment is a real measure of the skill and experience of the budget forecaster. Consequently, data and forecasting processes are only as good as the person interpreting them. To paraphrase world-renowned statistician George E. P. Box, I suggest that All DATA are Wrong, Some are Useful. This judgment operates on many inputs to reach a final forecast. 

Informed judgment plays a critical role in the determination of the final forecast numbers and, later on, in the determination of when a forecast should be revised.

Informed judgment is, by far, the most crucial element when we are trying to predict the future. Informed judgment is what ties the forecasting process and the extrapolative techniques into a cohesive effort that is capable of producing realistic predictions of future events or conditions. Informed judgment is an essential ingredient of the selection of the forecasting approach; the selection of data sources; the selection of the data collection and data cleaning methodologies; the selection of preliminary data analysis and extrapolative techniques; the use of exception-handling and root-cause analysis techniques during the forecasting process; the identification of forward-looking market and company factors that are likely to affect the future of the item to be forecast; the determination of how those factors will affect the item in terms of the direction, magnitude (amount or rate), timing, and duration of the expected impact; and the selection of the forecast presentation methodology.

Informed judgment plays a significant role in taming the uncertainty associated with all forecasting applications.

Automatic processes, models, and statistical algorithms are now increasingly used in computing future demand from a set of key factors. However, no such approach should reduce substantially the reliance upon sound judgment. Judgment must be based on a comprehensive analysis of market activities and a thorough evaluation of basic assumptions and influencing factors.

The limitations of a purely statistical modeling approach should be kept clearly in mind. Statistics, like all tools, may be valuable for one job but of little use for another.  An exploratory analysis of data patterns is basic to demand forecasting and a number of different statistical procedures may be employed to make this analysis more meaningful. However, the human element is required to understand the differences between what was expected in the past and what actually occurred and to predict the likely outcome of future events.

Dr. Hans is the author of a new book on business forecasting for the professional development and application in global demand/supply chain planning organizations.  

The full text is available for registered users. Please register to view the rest of the article.
  • Log In
  • or
  • Register

Related articles

A New Approach to Business Forecasting
July 10, 2018

Many millions of people are stuck with the habit of smoking. They know its bad for...

Read more
Budget Tracking with Rolling Statistical Forecasts
April 30, 2018

For organizations with annual expense budgets, it is important to have procedures for monitoring expenditures and...

Read more
Demand Forecasting is Mostly About Data Exploration
March 9, 2018

As most forecasting methods require data, a forecaster analyzes the availability of data from both external...

Read more
+

Subscribe to
FP&A Trends Digest

We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.

Create new account

image

Event Calendar

Pagination

  • Previous
  • May 2025
  • Next
Su Mo Tu We Th Fr Sa
27
28
29
30
1
2
3
 
 
 
 
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Transforming FP&A Together: Human & AI Synergy
 
18
19
20
21
22
23
24
Moving from FP&A to Extended Planning and Analysis (xP&A)
 
Five Critical Roles for Building a World-Class FP&A Team
 
25
26
27
28
29
30
31
FP&A Business Partnering and AI: A New Era
 
All events for the year

Future Meetings

The Face-to-Face Amsterdam FP&A Board
The Face-to-Face Amsterdam FP&A Board Transforming FP&A Together: Human & AI Synergy

May 15, 2025

The Face-to-Face Milan FP&A Board
The Face-to-Face Milan FP&A Board Moving from FP&A to Extended Planning and Analysis (xP&A)

May 20, 2025

The Face-to-Face Frankfurt FP&A Board
The Face-to-Face Frankfurt FP&A Board Five Critical Roles for Building a World-Class FP&A Team

May 22, 2025

BPAI
The FP&A Trends Webinar FP&A Business Partnering and AI: A New Era

May 28, 2025

The Face-to-Face London FP&A Board: Data Management & Analytics: Unlocking FP&A Value
The Face-to-Face London FP&A Board Mastering Data in FP&A: Smarter Analytics, Better Decisions

June 5, 2025

FP&A Trends Webinar The Evolving Role of FP&A: From Number Cruncher to Strategic Advisor
The FP&A Trends Webinar Making FP&A Teams Fit for the Future

June 11, 2025

The Face-to-Face New York FP&A Board
The Face-to-Face New York FP&A Board From Insight to Impact: FP&A Business Partnering in Action

June 17, 2025

The Face-to-Face Sydney FP&A Board
The Face-to-Face Sydney FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

June 26, 2025

The Face-to-Face Singapore FP&A Board: Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments
The Face-to-Face Singapore FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

July 8, 2025

AI/ML FP&A
AI/ML FP&A
Data and Analytics
Data & Analytics
FP&A Case Studies
FP&A Case Studies
FP&A Research
FP&A Research
General
General
Integrated FP&A
Integrated FP&A
People and Culture
People and Culture
Process
Process
Technology
Technology

Please register to receive the latest FP&A news, updates and tips.

info@fpa-trends.com​

              

Foot menu

  • FP&A Insights
  • FP&A Board
  • FP&A Videos

Footer countries

  • Amsterdam
  • Austin
  • Boston
  • Brisbane
  • Brussels
  • Chicago
  • Copenhagen
  • Dubai
  • Frankfurt
  • Geneva
  • Helsinki
  • Hong Kong
  • Houston
  • Kuala Lumpur
  • London Board
  • London (Circle)
  • Melbourne
  • Miami
  • Milan
  • Munich
  • New York
  • Paris
  • Perth
  • Riyadh
  • San Francisco
  • Seattle
  • Shanghai
  • Singapore
  • Stockholm
  • Sydney
  • Tokyo
  • Toronto
  • Washington D.C.
  • Zurich

Copyright © 2025 fpa-trends.com. All rights reserved.

0