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The Case for Better Financial Planning and Forecasting

Financial forecasting and resource planning can be challenging under any circumstances, but today there is more demand from operating managers for forward-looking, driver-based analysis and scenario testing. CFOs, for their part, want less volatility in projected sales and earnings.

Looking at benchmarking metrics contained in APQC’s Open Standards Research database, we find data, for example, about the relative level of percentage errors in forecasting inventory costs (see below).

                                                                             

                                 

The gap between top and bottom performance could be significant, depending on your sector and business model, of course. If you are in the bottom quartile and it matters, ask yourself, what would it take to close that gap? And, is the ROI there for the effort?

Rules of thumb for inventory cost forecasting? I put the question to Steve Player, Director of the Beyond Budgeting Roundtable in North America. He’s a well-known author and advisor specializing in budgeting, planning, and forecasting.

“Cut the data according to your industry sector and look at how you are doing,” said Mr. Player. “Always keep in mind there are definite profit & loss implications tied to the precision of your forecasts. And this is an area that could be a real money maker if you dig into the assumptions and drivers.”

For example, he added, “you need to forecast how much cost will be tied up in inventory or how much sales revenue could be lost due to what you do or do not have on the shelves at any given point in time.” His bottom line: it’s important to pay attention to changes in marketplace and customer demand. It’s important to ensure your planning models—whether driver-based math models or more advanced statistical models—reflect what’s going on at the front lines of the business. Ditto for the impact of macro and other external factors. “This is where FP&A people need to raise their periscopes and make way for good judgment,” said Mr. Player.

There’s no room here for a comprehensive analysis. But APQC has found early indications that many CFOs and controllers want to strengthen financial planning and analysis (FP&A) capabilities in general.  But there are obstacles blocking the way.

Let Your Voice Be Heard

I am currently conducting a very brief (less than 10 minutes) opinion survey to sort this out and explore what’s holding people back. And I’m trying to learn what CFOs think is the key that turns the lock on FP&A improvement.

Won’t you please take just a few minutes to take the survey ? You can rest assured; all individual responses are kept strictly confidential and protected by APQC’s Benchmarking Code of Conduct.

To say thanks for your participation, we’ll send you our analysis of research findings (a report otherwise reserved for members of APQC.)

If you have any questions, please contact me at mdriscollatapqc [dot] org

Thanks in advance for your help.

PS:  Click here : http://goo.gl/GdnnS7  for a look at related APQC metrics and survey findings.

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