Forecasting is a learned skill, and as such, it can be taught and improved over time. It also will never be perfect. Yet, I often see CEOs and executives giving the financial staff a terrible time when actual results differ from the forecast. I have also seen many financial personnel terrified to provide a forecast to the executive team because it is built on assumptions rather than “facts.” By nature, financial personnel tend to be more averse to making mistakes than others. They want their numbers to be right, but forecasts are never “right” in precisely matching actual results. No one can absolutely predict the future. A forecast can only provide a directional view based on the best knowledge available.
Forecasting is not limited to financial numbers. Every discipline has some kind of key activity or metric to forecast, so CEOs, CFOs, CIOs, COOs, and any other kind of business leader ought to be able to understand the uncertainty and apprehension involved in forecasting.
You can only become excellent at forecasting by working on it. Mistakes will be made. Through practice, you will gain a better understanding of the drivers of the key activities which are drivers for the financial results. Not only will the accuracy of your forecasts improve over time, but you will also gain a deeper understanding of your business (which is the greatest value of forecasting).
For more insight on financial forecasting, consider reading Before You Hire a CFO.
Tags: CEO, CFO, financial forecasting
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