Forecasting is a crucial skill for any business, but it can also be challenging and prone to errors. How can you ensure your team uses the right assumptions in forecasting and avoids common pitfalls? In this article, you will learn some tips and best practices to improve your team's forecasting accuracy and collaboration.
Before you start forecasting, you need to have a clear idea of what you want to achieve and what factors you need to consider. Define your objectives and scope for your forecast, such as the time horizon, the level of detail, the sources of data, and the key drivers and variables. Communicate these to your team and align them with your business goals and strategy.
To ensure your team uses the right assumptions in forecasting, consider the following strategies: 1. Collaborative Input 2. Historical Data Analysis 3. Market Research 4. Scenario Planning. 5. Regular Review: Continuously review and update assumptions based on new information. 6. Cross-Functional Collaboration 7. Data-driven Decision Making 8. Training and Education Regularly revisiting and adjusting assumptions based on real-world feedback and data is essential for maintaining accuracy.
Data is the foundation of any forecast, so you need to ensure that you have reliable and relevant data to support your assumptions. Gather data from various sources, such as historical records, market research, customer feedback, and industry trends. Validate the data for accuracy, completeness, and consistency. Check for any outliers, anomalies, or biases that might skew your results.
Make sure that you have gather data from more than one source, confront them and use the best available data. Outliers should be excluded. Review, review and review, make sure that this data are available for the team and no one can change it. Backup and sources should be recorded.
Depending on your objectives and scope, you might need to use different methods and tools to forecast. For example, you might use qualitative methods, such as expert opinions or surveys, for new or uncertain scenarios. Or you might use quantitative methods, such as regression analysis or time series models, for more stable or predictable situations. Choose the methods and tools that best suit your data and assumptions, and make sure your team is familiar and comfortable with them.
One of the most common sources of error in forecasting is using unrealistic or inaccurate assumptions. To avoid this, you need to test and refine your assumptions regularly and systematically. Use sensitivity analysis, scenario planning, or simulation techniques to assess how your forecast changes with different assumptions. Compare your forecast with actual results or benchmarks, and adjust your assumptions accordingly. Document and explain your assumptions and their rationale, and share them with your team.
Forecasting is not a solo activity, but a team effort. You need to collaborate and communicate with your team and other stakeholders throughout the forecasting process. Seek input and feedback from different perspectives and expertise, and incorporate them into your forecast. Communicate your forecast clearly and concisely, using charts, tables, or dashboards. Highlight the main findings, assumptions, and uncertainties, and provide recommendations or action plans.
Assumptions have to be shared with all colleagues to ensure a consistent forecasting method. Usually before start the forecast elaborations, general management organises a meeting with all managers in which shows and explains the guidelines that managers have to adopt during forecast elaborations. FP&A is the office in charge to control forecast assumption used by managers and has to ensure assumptions consistency.
Forecasting is not a one-time event, but a continuous cycle. You need to review and update your forecast regularly and timely, as new data, information, or events emerge. Monitor your forecast performance and accuracy, and identify any gaps or deviations. Learn from your mistakes and successes, and improve your forecasting skills and processes. Keep your team and stakeholders informed and engaged, and celebrate your achievements.