Forecasting Tip #2 – Always forecast a range of outcomes

Unless you have the gift of second sight or are a time traveller, you do not know how the future of your business will work out. Other than for very low risk operations, there is always going to be a range of future outcomes that are possible. The purpose of forecasting is to outline in financial terms what this range of outcomes could be and build an understanding of what the likelihood of each is.

The people who prepare or review a forecast should learn a lot about the financial dynamics of their business: what drives revenues and costs and what puts these at risk, through the forecasting process. They should be preparing themselves for the management decisions that are going to have to be taken given different circumstances.

Too many forecasts are communicated as single line predictions. By their very nature these forecasts have to be wrong. They are usually really targets (see Forecasting Tip #1).

poor-forecast

A better forecast shows the range of possible outcomes.

better-forecast

Please let us hear your forecasting tips by contacting us.

Forecasting tip #1 – Distinguish between forecasts and targets

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