The Importance of a 3-Year Forecast in Strategic Planning
Carl Seidman, CSP, CPA
Helping finance professionals master FP&A, Excel, data, and CFO advisory services through learning experiences, masterminds, training + community | Adjunct Professor in Data Analytics | Microsoft MVP
While a near-term view allows us to capture specific activities and known improvements, a long-term view allows us to plan for the future.
Year 1 forecast - detail and accuracy:
Given the closer time horizon, events in a one-year forecast should be far more predictable. Near-term forecasts tend to be more detailed and, ideally, more accurate than forecasts thereafter.
While operational improvements aren't always realized in short order, we can more likely analyze and quantify these improvements in the near term. We can see the immediate impact of efficiency measures on direct costs and margin improvement.
Year 2-3 forecast:
Heavily dependent on year 1, we see current initiatives and improvements come to fruition. Recognize that if the company fails to achieve year 1 performance, it's likely that subsequent year forecasts will also be less reliable.
Year 4+ forecast:
As we move to later years, we typically shift focus to normalization, recognizing that long-term projections need to account for more stable and sustainable performance.
Does it matter how far into the future you forecast?
I believe so. If a 1-year forecast is intended for near-term planning, a 3-year forecast helps with strategic planning. A normalized 5- or 6-year forecast aids in long-term planning, capex anticipation, and valuation.
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A well-structured 3-year forecast bridges the gap between immediate goals and long-term vision, helping businesses navigate uncertainty with greater confidence. While short-term accuracy is essential, strategic planning requires a broader outlook—one that accounts for growth, operational improvements, and market shifts. By balancing detail with flexibility, organizations can make informed decisions that drive sustainable success. For more FP&A insights, follow me on LinkedIn.
Until next time,
Carl
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1 周I support the beard, Carl! I support it so much
Fractional CFO | Driving Sustainable Growth for SaaS Startups and Scaleups Through Expert Financial Leadership | Fueled $450M Growth and 3x Acceleration
1 周Agreed. Its critical to have a 3+ year forecast for strategic planning.
FP&A Trainer | Live Training & Online Courses for Finance Pros | Director, Wharton FP&A Certificate Program | Past training clients include: Merck, Lowe's, Unilever, Squarespace, Google
1 周When it comes to creating 3-year forecasts, a mistake I often see finance teams make is that they think they can use just one forecasting technique. For example, I see finance teams use time series analysis to project the next three, six, twelve, and even 36 months. That's a mistake. You want to use different techniques for 3-9 months than for 9-12 or even 36 months. I'm a big fan of using a combination of detailed driver-based forecasts and statistical methods for short-term projections. When it comes to mid- and long-term forecasting, you want to use a technique that is less detailed and less focused on recent data. A driver-based approach can still work, but it needs to be much more top-down. Expert-judgement-based techniques that consider long-term trends can also work well here - as long as you start testing the hypotheses as soon as you have more data.
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1 周Thanks for sharing
Real Estate Investment Advisor | UAE Market?Expert | Invest In Dubai | Business Setup | Tax Consultancy |
1 周That’s where real vision comes in. I’ve seen businesses struggle because they were too focused on the now and didn’t prep for what’s next.