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Formalizing forecasting: Gaining effective data for today and tomorrow

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Almost every business does some form of forecasting to drive organizational decision-making. The importance of forecasting and understanding the demand for products and services has never been clearer than during the COVID-19 pandemic, but it is a process that is critical year-round, regardless of the scenario. However, forecasting tools and strategies are evolving, and companies that implement a formalized platform and process can gain more timely insights and become more agile in anticipating and implementing key changes.

For example, scenario planning is a common function within most businesses. Companies develop plans based on available information, revise the forecast based on actuals and track progress moving forward. Within many companies, the problem isn’t the plan, but rather the mechanism for tracking information.

The majority of middle market companies perform forecasting activities in Excel and many eventually find themselves in a state of spreadsheet chaos, with an excessive number of areas that need to be tracked. In many cases, companies take data out of their enterprise resource planning system, and transition it into a spreadsheet for forecasting and budgeting. Unfortunately, those spreadsheets often become massive and very difficult to maintain, and they are not very accurate at times and may not include the most up-to-date product mix or vendor list.

To address this chaos and inconsistency, and create a more effective forecasting environment, many middle market organizations are turning to corporate performance management (CPM) solutions. An automated CPM platform can take data from various systems—from an integrated ERP system to a data file and from a spreadsheet or an active database—and build it into a model that allows companies to perform more formalized forecasting with one consistent version of the truth.   

Increasing visibility during business disruptions

During typical business operations, an organization is selling products and services and revenue is flowing in. However, even in normal conditions, measuring operations versus the actual liquidity of cash can be challenging with manual processes.

Fast forward to the current COVID-19 pandemic. Many companies have encountered further struggles to determine an accurate cash flow mark because some revenue sources have been delayed or are no longer coming in.

Ultimately, many existing forecasting models have been rendered obsolete during the pandemic. While this event may be a once-in-a-lifetime scenario, other business disruptions will no doubt happen and will challenge traditional, spreadsheet-based forecasting methods. Transitioning to a CPM model can give your company a more dynamic, efficient and robust framework with the ability to forecast against multiple scenarios to stretch cash levels and become more sustainable.

Furthermore, while CPM can help remedy the problem of companies incorrectly forecasting and running out of cash, the opposite is also true. Companies in some industries have an influx of cash coming in, and are having trouble managing that revenue, while others have shifted production to new products and created new revenue and cash flow models. CPM can provide new insight into, and help manage, potential revenue shortages, but revenue growth as well.

Saving time while gaining insight

One of the most valuable elements that companies gain with a CPM platform is time. Finance and accounting teams are often focused on gathering data and making sure that calculations are correct. Performing those tasks on a monthly or quarterly basis takes a lot of time that could be dedicated to more strategic tasks.

In addition, more timely data means more accurate data. Gathering data for manual forecasting can often take weeks, and by the time it is complete, information is inherently dated and business needs or customer demands may have changed significantly. The ability to upload actual data and forecast through a CPM system is very powerful, and can help drive the business in a more confident direction with more strategic decision-making.

A CPM tool helps with eliminating that time consumption involved with putting data together, allowing more time for analytics. An effective solution helps your business become more decisive with support from real-time data.

Delivering value regardless of the business environment

During challenging business conditions—such as the 2008 recession, 9/11 and now the COVID-19 pandemic—CPM and other business intelligence tools see an uptick in demand because of difficulties related to forecasting. In these scenarios, a once-a-year plan or even a quarterly or monthly forecast just isn’t effective. Instead, companies require weekly or even daily data and in-depth insights that a CPM tool can provide. 

However, companies now need to make rapid business decisions on a daily basis, even outside of such a disruptive environment. By utilizing CPM, companies can take advantage of enhanced visibility and current data to move the business forward.   

The increasing importance of cash flow projections

Historically, most companies have not measured cash flow on a regular basis, much like many individuals don’t always balance their check books. Even when implementing a CPM solution, many companies focus on revenue and expenses, but not always cash flow. However, in addition to the need to understand cash flow during the pandemic, many banks have recently changed their standards for lending, requiring at least a 13-week cash flow statement. That new stance requires a forecasting shift which can be much more efficiently enabled within a CPM solution than through manual means.

Beyond lending, a growing number of stakeholders now want to review forecasting and cash flow projections. The technology behind CPM solutions enables easier sharing of key data and ongoing collaboration.

Conclusion

The forecasting and budgeting methods of the past, with volumes of spreadsheets and manual data analysis, are going away—in part because they do not yield the level of accurate, on-demand information as automated CPM platforms. Instead of outdated monthly or quarterly forecasts, CPM enables a rolling, nonstop forecast with metrics available at any time. This framework improves forecast accuracy and the potential for value-added analysis, while reducing the time to create any mandatory reporting and budgeting cycle time.

The business model is evolving and moving quickly—COVID-19 is currently responsible for a significant amount of change, but business agility and efficient access to data will be a critical element of success post-pandemic as well. With a comprehensive CPM platform, your company can achieve a higher level of forecasting with greater accuracy and vision due to real-time metrics. And the next time a business interruption occurs—and it will—your business will be ahead of the game and not scrambling to develop a new forecasting model.     

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