Since the downturn of 2008-2010, many CFOs report increased anxiety related to forecasting effectively in a highly uncertain planning environment. With critical revenue- and budgetary- planning activities reliant on accurate forecasts, many companies are intensifying efforts to increase forecast precision, with mixed results.
Numerous recent articles describe how efforts to achieve maximum accuracy can be misguided, and suggest that CFO time is better spent in other areas. One argues that CFOs should build dynamic “profit maps” with a 70% accurate “income statement” on every invoice line, which can then be analyzed by product, account and other key dimensions. This enables finance to better align the level of accuracy with the use of the information. Another article asserts that instead of attempting to plan for every contingency and then reacting too quickly to events, companies should focus on strategic agility- developing trigger-based mechanisms to ensure timely risk reviews and strategic course-corrections. This approach ensures a more objective assessment of current options, rather than force-fitting the past plan to changed circumstances. In today’s “new normal,” is it better to seek sufficient, rather than maximum, forecast accuracy? How are you prioritizing forecasting and planning efforts to ensure agility in an uncertain business environment?
