How to get better at forecasting
The challenge for budget owners is being able to predict financial results with confidence.
“We are going to be over budget but I’m not sure by how much.”
“We don’t have enough budget. We will need more next year.”
“Do we have enough money to run these projects?”
People want answers. And, forecasting offers us an understanding, to provide some possible answers.
Want to get better at forecasting? And get known for being able to describe what might happen.
Here are three rules that may be helpful:
1. A forecast is not a promise
A forecast is an estimate of what will happen based on what we know today.
It is not a promise. But it can feel like one.
Especially when people around us say things like:
“We need to hit our forecast this month!”
“Where can we find some savings?”
“We need to make up some ground in the next quarter”
When forecasting feels like a promise, we avoid it.:
“I really can’t say. There are too many moving parts”
“It’s too hard to predict. Things are changing by the day”
When we avoid forecasting, we miss an opportunity to learn something.
2. Forecast quality is more important than forecast accuracy
Forecast accuracy is about getting things right.
Measuring forecast accuracy may stop people from sharing the truth:
“I added a 10% buffer to my forecast as (my manager) is keen to come in under forecast.”
Forecast quality is about finding what was missed. “We found something that wasn’t included in our forecast.”
When you learn something new, it should be celebrated. And then put into action.
3. It’s like an early warning signal
Financial results happen over time.
Think of your forecast as a signal that brings these future results into the present.
A client I am coaching decided to call their forecast an “end of month prediction”.
Another client likes to get an updated forecast by asking the question “Where do we think we will land?”
Keep sending signals and people will start to notice.
PS: Want to get better at forecasting? Here is a cheat sheet to get you started