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LEARNING RESOURCES

sales negotiate a low target and then
easily exceed it, there may not be
adequate inventory to fulfil all the Applying Forecasting Tools to Financial Projections and
orders, as the production schedule was Analysis
based on an artificially low forecast.
Understand how to apply forecasting tools to financial projections
Measure forecast accuracy and analysis to improve profits, returns, and decision-making.
When I served as head of corporate COURSE
planning for a large global bank, I
introduced a metric that looked at each
business unit’s forecast accuracy over Budgeting, Forecasting and Planning in Uncertain Times
an extended period of time. With the
agreement of the CFO, this was added The authors analyse the current problems of planning within
to the scorecard of each business that organisations and propose a framework that deals with the complexity
was provided to the CEO. The simple and volatility of today’s business environment.
act of measuring forecast accuracy and Find this ebook in the AICPA Store and in the CGMA Store.
holding each business accountable
reduced forecast variances by more EBOOK
than 50%.
Financial Forecasting: Planning for Success
Explicitly address risk and uncertainty
Use sensitivity analysis and scenario This course focuses on the tools needed to project the balance sheet
planning to communicate the impact of and statements of income and cash flow. It will also help you
uncertainty and variability on key determine a company’s maximum sustainable growth and predict its
variables. A leading Asian electronics external fund requirements.
company develops forecasts under
different sets of assumptions around COURSE
four key variables that can materially
impact future financial performance: MBAexpress: Better Budgeting and Forecasting – V 2.0
raw material price inflation, exchange
rates, shipping costs, and competitor This course can help you turn forecasting and budgeting into a
pricing. Over time they have been able to positive planning process that helps your organisation achieve its
identify that almost 90% of forecast strategic goals.
variances are driven by one of these four
variables. By developing alternate COURSE
forecast views under different
assumptions for these four variables,
management is equipped with valuable
insight on the range of future financial range indicating lower confidence and outcome manifests itself, we have a
outcomes under different a narrower range greater confidence. basis for isolating the drivers of the
circumstances. variance, identifying corrective actions,
Ditch a forecast that is no longer and building that meaning into future
Communicate confidence levels credible forecasts. As data availability expands,
Not all numbers in a forecast are Forecasts can be a valuable tool for analytical tools advance, and experience
created equal. Some numbers can be guiding planning, investment, and increases, we will be able to develop
forecast with a high degree of execution. However, more valuable than forecasts more frequently, in shorter
confidence; for example, expenses that strict adherence to a forecast is to be time frames, and with increased
are quantified in long-term contracts. smart enough to (1) identify when a confidence. ■
Others — and, unfortunately, they are forecast is no longer valid and (2) agile
often highly material items, such as enough to adapt your behaviour and
sales — are very difficult to predict actions. David A. J. Axson is a consultant and
with a high degree of accuracy. A author and a retired partner from
number of organisations communicate Moving forward with confidence Accenture, a co-founder of The
confidence levels in each element of Of course, we do not have a crystal ball, Hackett Group, and former head of
the forecast so management so forecast variances can never be fully corporate planning at Bank of
understands the likely areas of eliminated. However, by adopting a America. To comment on this article
uncertainty. This can be done in a rational, common-sense approach, we or to suggest an idea for another
number of ways: Use colour codes to can have confidence that forecasts article, contact Oliver Rowe at
indicate confidence, ie, green for high, represent the best view of the future Oliver.Rowe@aicpa-cima.com.
red for low; or use ranges, with a wide available at the time. If a different

FM-MAGAZINE.COM October 2022 I FM MAGAZINE I 11