Confidence in Forecasting
Continuous Forecasting & Profit Guidances
A critical credibility measure of management is in their predictability of outcomes.
Peter McIntyre, CEO of McCallum Group
Ramesys' purpose built software is some of the easiest to use software available. We recognise that cost owners don’t have hours available to prepare forecasts and therefore both our data capture and reporting tools are built to enable users to focus on causes for cost variances and operational improvement opportunities. So what are some of the outcomes expected from a robust continuous forecasting process?
At the forefront of forecasting solutions
Management are not just relying on information as to how they performed last month against budget, They are constantly informed of how they can expect to perform at any time in the remainder of the budget cycle (or beyond). This is not just critical for managing the business activities and cash flow, but also for removing those “surprises” when reporting to the stock exchange.
A powerful management tool - It is much easier to ask a cost owner to identify the reasons for missing a forecast set 30 days ago, than for missing a budget set 6 months ago. And by reviewing actual performance against last month’s forecast, it is very clear when the corrective actions identified by the cost owner are not resolving the problem.
A forecast is not just a reactive tool. Cost owners should be constantly challenged to find opportunities to reduce the forecast cost expectations.
The time necessary for Budgeting & Forecasting, both for Finance and Operations, is easily reduced by 50%!
Why Forecasting is critical
Investors, financiers, analysts, want predictable results – achieving what is planned. The wider the gap, the less control management is perceived to have over the business.
Traditionally control has been measured against the annual budget – unfortunately, the only certainty about a budget is that as soon as is it is signed off, ongoing business activities will ensure that it is wrong.
A budget is a point in time prediction based on the best knowledge to hand at that point in time. The further you move away from that point in time, the more wrong that prediction is likely to become.
However, we also know that without a target, we have no idea where we are going. So if our budget is our target, then our forecasts are our beacons, helping us to understand where we are in relation to that target. Logically then, the more frequently we measure this progress, the more opportunity we have to understand the business changes and how they are going to impact on our progress towards our target.
Forecasting has become really simple
Continuous (monthly) forecasting used to be an onerous task, mainly because the tools we had to manage the process were spreadsheets. Database solutions have changed all of that and a well developed database solution can have minimal monthly impact on cost owners whilst delivering very powerful results.