Seeing the way that the forecasts by the Office for Budget Responsibility seem to be forever shifting from one Budget statement to the next, made me ponder the true value of a forecast. After all, even within the space of a few short months, the assumptions on which the state of our nation’s finances are assessed can vary enormously. So is there any real value in a forecast, if it keeps shifting so much…?
It’s a question that I get asked a lot, and one to which I always have an unequivocal response… ALL serious businesses, no matter how small, should have a forecasting process in place. No exceptions!
It doesn’t have to be wildly sophisticated, but without a window into the future, you are effectively driving your business forward blind. How else will you have any idea what your business might look like in 6 months, 12 months or 2 years’ time? Forecasting and planning go hand in hand and we all know the old adage—failing to plan is planning to fail.
But before undertaking a forecast, it is worth considering the following:
1. A forecast will never, ever be 100% accurate so don’t expect it to be. The key thing is that a forecast is reliable i.e. it is based on fair assumptions and is free from bias
2. Forecasting isn’t about target-setting, it’s about decision-making. No beating yourself up for not delivering the forecast; rather it is a process around which decisions can be based
3. Chose a relevant time-frame for your forecast. If the effect of any actions taken today will not be seen for many months, then make sure your forecast horizon reflects this.
4. Forecasts should be actionable. There is no benefit in forecasting if no actions are taken as a result
5. Forecasting is a journey, not an event. It has to be an ongoing process because the context is always changing and new learning needs to be fed in. There is no right or wrong answer and a range of views as to the future may have equal validity.
Just as our political leaders can not plan their taxation and spending policies without key forecast numbers around which to base their decisions, nor can business owners chart their own course without an effective forecasting process in place.