Improving forecast quality

One tip..

I was working with an operations team recently. And we were focussing on the challenges they were having with predicting costs.

I asked the team leader how they would define forecast success.

“Predicting with confidence” they replied.

How do you measure financial confidence?

Accuracy is not the best measure. It is outcomes focussed.

“I am right or I am wrong.”

And may drive the wrong behaviour.

“It’s better to come in under forecast.”

What if we included a measure around quality?

I give you a practical example of how you can do that in this one page guide.

This is my third tip to help budget owners with cost control.

Here is a quick recap:

Tip 1

Start by asking the question: “How did that cost get here?”.

Tip 2

Remove any lag in cost data by asking the question: “What did we spend this month?”.

Tip 3

When predicting costs, start by focusing on quality and not accuracy.

Cost control is less about the numbers.

And more about how people understand the impact of their actions.

I refer to this as understanding “what’s behind the numbers”..