Forecasting is the process of making predictions based on past and present data. These informed estimates help determine the perceived direction of future trends. Because the future is always uncertain, forecasts must often be revised, and the actual results can vary greatly. The more accurate the forecasts, the more accurate the decisions.
In business, the process of forecasting tries to make informed guesses or predictions about the future state of certain financial metrics such as growth, expenses, or economy-wide predictions. Managers use forecasting for internal purposes to best decide where to allocate resources.
The biggest limitation with forecasting is that it involves the future, which is fundamentally unknowable today. There is no guarantee what will happen tomorrow. As a result, forecasts can only be best-guesses. While there are ways to improve the reliability of forecasts, the assumptions and the data which is input, has to be correct. Otherwise, it’s garbage-in, garbage-out.
And even when the data is correct, forecasting often relies on historical data, which can’t be guaranteed to be valid in the future. It’s also impossible to factor in anomaly issues, such as what we experienced during the heights of COVID or should there be a national disaster.
While no forecast can be fool-proof, here’s a closer look at the most common forecasting mistakes & how to avoid them.
Feelings and guesswork about the way sales are going are not the best indicator for what’s to come. When sales forecasts are based on hunches, opportunities are far less likely to close as predicted. Of course no forecast is perfect, but a prediction based on data and actual behaviors is always more accurate.
The customer’s past performance is often the best indicator predictor of the future. Valuable data from past years are powerful indicators for what you can expect in a comparable forecast period. Knowing your customers’ needs will also validate the demand for any significant forecast divergence from past performance in the same period.
It’s important to define these stages clearly and to identify the behaviors that signal transition from one stage to the next (e.g., taking a demo or getting a sales visit). Failure to clearly identify these stages distorts the forecasting accuracy.
Forecasting numbers to appease management’s expectations is complaisant and inaccurate. It also shows lack of drive and knowledge of the customer’s expectations.
Not having a full understanding of the market and the competitive landscape results in forecasts being created in a siloed vacuum. These are forecasts without vision and validation which then become inaccurate and misleading. This mistake can force businesses to experience excessive cash loss.
Technology makes forecasting easier and more automated, allowing business leaders to focus their valuable time and resources on making the best decisions for their organization. It also ensures 100% confidence in your data.
Every organization needs a software solution to maximize their reporting, budgeting and planning needs. A leading software solution, like Synoptix, will provide:
1. Flexibility & Accuracy – You should be able to quickly & easily change your budgets & forecasts on-the-fly to see the impact of decisions before making them.
2. Simplicity & Automation – Look for a solution that has a user-friendly interface & doesn’t require technical experts to create your reports & budgets.
3. Instant Visibility – You need a toll that provides real-time insights with the ability to drill-down into the details.
4. Streamlined Collaboration & Improved Communication – Information silos must be broken down & planning aligned across every department. A top-notch tool will improve communication among all departments.
Jeana has been in the software industry for 15+ years specializing in ERP reporting solutions. She has decades of experience in creative content development and marketing and enjoys exercising, traveling & spending time with her husband & twin boys.
Download Spreadsheets-The Corporate Secret Killer & What to Do About It to better understand its inherent errors, how to manage quality control & overconfidence, with detailed solutions on improving spreadsheets in financial reporting.
THOUGHT LEADERSHIP WHITEPAPER
We want to provide you with an update on the Log4J vulnerability that was identified this weekend as it relates to your Synoptix installation. The short answer is that there should be no vulnerability issues with Synoptix. Synoptix no longer uses Log4J. Version 7 did use version 1.2 of Log4J (which was not vulnerable), and should therefore also be clear of any vulnerability issues related to Log4J version 2.0-2.14 (which was identified this weekend as having vulnerability).