You’re responsible for budgeting and forecasting. How do you ensure you’re tracking the right metrics?

1 Understand your objectives

Before you start crunching numbers, you need to have a clear vision of what you want to accomplish with your budgeting and forecasting. What are your short-term and long-term goals? How do they align with your mission and values? How will you measure your success? These questions will help you define your objectives and identify the key performance indicators (KPIs) that matter most for your business. KPIs are quantifiable metrics that reflect how well you're doing in relation to your objectives. For example, if your goal is to increase sales, some possible KPIs are revenue, profit margin, conversion rate, and customer retention.

2 Choose relevant and realistic metrics

Once you have your objectives and KPIs, you need to select the metrics that will help you track and forecast them. Metrics are the specific data points that you collect and analyze to measure your performance and progress. For example, if your KPI is revenue, some possible metrics are sales volume, average order value, and growth rate. The metrics you choose should be relevant to your objectives, realistic to achieve, and easy to understand and communicate. Avoid using too many or too vague metrics that might confuse or distract you from your main goals. You can use a framework like SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) to help you select and define your metrics.

3 Use reliable and consistent data sources

The quality of your budgeting and forecasting depends largely on the quality of your data. You need to ensure that the data you use for your metrics is reliable, accurate, and consistent. You can use various sources of data, such as historical records, market research, customer feedback, industry benchmarks, and competitor analysis. However, you need to verify the validity and credibility of your data sources and make sure they are updated and standardized. You also need to account for any assumptions, biases, or uncertainties that might affect your data and adjust your metrics accordingly.

4 Track and review your metrics regularly

Once you have your metrics and data sources, you need to establish a system for tracking and reviewing them regularly. You can use tools like spreadsheets, dashboards, or software to collect, organize, and visualize your data. You can also set up alerts or notifications to inform you of any changes or anomalies in your metrics. You should review your metrics at least monthly, quarterly, and annually, and compare them with your budget and forecast. This will help you monitor your performance, identify trends, spot issues, and make adjustments as needed.

5 Communicate and collaborate with your team

Budgeting and forecasting are not solo activities. They involve input and feedback from various stakeholders, such as your employees, customers, partners, and investors. You need to communicate and collaborate with your team to ensure that everyone is on the same page and aligned with your objectives and metrics. You should share your budget and forecast with your team, explain the rationale behind your metrics, and solicit their opinions and suggestions. You should also encourage your team to report and discuss their metrics regularly and celebrate their achievements. This will help you create a culture of accountability, transparency, and continuous improvement.

Budgeting and forecasting are not easy tasks, but they are vital for your business success. By choosing and tracking the right metrics, you can improve your decision-making, optimize your performance, and prepare for the future.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?