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Uncertain Times Demand Flexible Forecasts

The credit crisis, volatile markets and uncertain prices for supplies and raw materials are making it extremely difficult for companies to forecast financials. In a recent CFO magazine survey, 70% of respondents said they couldn’t forecast more than one quarter out. Of those, 25% said they couldn’t forecast more than two weeks ahead and another 25% claimed they were “in the dark.”

Don’t let a difficult economic environment cause you to give up on forecasting. Instead, take steps to improve the accuracy of your forecasts and strengthen your ability to respond quickly to changing circumstances.

The first step is to identify your company’s key performance drivers. These are factors such as raw material prices, direct labor hours, customer conversion rates, inventory availability, new product innovation, global sales or customer service levels.

Next, ensure you have systems in place to track these drivers and communicate the results quickly throughout your company. By monitoring this data in real time (or at least close to real time) and frequently updating your forecasts, you’ll be in a better position to respond to developing trends.

Even the best forecasts have limited value in a volatile economy. As a result, it’s important to develop greater flexibility to react quickly to events using techniques such as scenario modeling, which analyzes possible outcomes of various plausible combinations of operational strategies and economic conditions. Another technique to consider is contingency planning, which involves evaluating the impact of sudden market changes on your company and developing strategies for responding to them.

Whichever approach you choose, the key to success is developing strategies before you need them. That way, you can respond quickly and effectively when the time comes. 

Questions on forecasting? Contact Ken McCreadie at 312-980-2984.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.