A high-quality business forecast delivers far more than just numbers. Done well, it provides a road map for concrete recommendations to drive the business forward. It provides valuable information on what still needs to be done by whom in order to achieve the budget goals set.
Finance professionals regularly try to look in their crystal ball with forecasts and enable the company to have seamless, solid planning. For this to succeed, your forecast must be of high quality. You can achieve this ideal by having the following five characteristics in your forecast:
- realistic, but not flawless
- regularly adjusted
- uniform and systematic
- neutral from bottom-up
- granular and detailed
Realistic, but not flawless
Ideally, your planning should be based as closely as possible on the real conditions in your organization. Good communication and exchange within your team enables you to identify possible deviations from the goals more quickly and you can take countermeasures or readjust at an early stage. But it is better to avoid the illusion of being able to make a perfect forecast for the future, especially in the case of long-term forecast periods.
A forecast should be prepared and adjusted on a regular basis. The ideal forecast interval depends on the predictability and volatility of your markets. The quality of your forecast usually increases with shorter forecast intervals and thus provides a more reliable foundation to build on.
Uniform and systematic
A clear definition of terms, uniform rules and a common evaluation system are particularly important for high quality projects. They are an indispensable prerequisite for managers to be able to consolidate thoughtfully and effectively. A systematic approach makes the cycles of a project transparent for all team members, as well as the status quo and next steps.
Neutral from bottom-up
Developing your forecast “bottom-up” and aiming to make it as neutral and objective an assessment as possible will help improve the quality of your forecasts. Otherwise you could run the risk of missing your sales targets. A reliable forecast serves as an aid to budget determination and correction and helps makes it clear which direction you want to steer and whether there are deviations from the budget.
Granular and detailed
Aim to break the forecast down to regions, business units, employees, products and services as much as possible. This allows identification of opportunities and risks more quickly and derive more detailed recommendations for action.