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Send  Share  RSS  Twitter  23 Nov 2012

INFOTECH: Fancy Tools WonÂ’t Make Up for a Bad Forecasting Strategy

 





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“A lot of business planning depends on forecasts,” says Kevin Phillips, MD of idu Software, “And in the quest for ever more accurate and

reliable forecasts, a lot of people turn to increasingly fancy tools and algorithms.”



But what if the problem with your forecasts isnÂ’t the tools you are applying, but your whole approach to forecasting in the first place‘ If

your basic strategy is wrong, no amount of fancy processing will improve the quality of your forecasts. In fact, it could make things

worse, by masking the incorrectness of the data and giving a dangerous false sense of confidence.



Of course no prediction of the future can ever be better than an educated guess – but we can improve our guesses by improving the quality

of the information we base them on. ItÂ’s as the old adage goes: Garbage in, garbage out. If your forecasts for next year are based on

nothing more than this yearÂ’s figures, their value is low.



The most critical question to ask before you embark on any forecasting exercise is this: How much can we expect next year to be just like

this year‘ Close on its heels should come the next question: How many things that are going to make next year different do we already know

about, or can we find out‘ There will always be unknowns lurking around the next corner, but it makes sense to reduce their number as much

as possible.



The question about what might change for your business next year is not one that can be answered by the finance department alone. Sure,

there are some high-level variables you can get from professional economic analysts; but when it comes to the very specific issues that

might affect your business, you need to be turning to your own managers and operational staff.



One canÂ’t help wondering, for example, if whoever compiled LonminÂ’s forecasts for this year was aware of the fact that a rival union to NUM

was organising at their Marikana mine. If they had known, might they have factored in an increased risk of industrial unrest‘



An easy first step is simply to ask the question: “Is it reasonable for us to assume that youÂ’ll match this yearÂ’s production next year‘”

If the answer is no, seize the opportunity to find out more. What does your sales staff know about what competitors might be planning‘ What

do your production managers know about a supplier thatÂ’s facing difficulties‘



Instead of using technology to put your numbers through fancy contortions, use it instead to solicit information from your staff, quickly

and efficiently.



It’s a bit more work to do this research than simply to run this year’s figures through a clever algorithm, of course – but the benefits go

beyond more well-founded forecasts. If people know that their input has been heard, theyÂ’re typically more inclined to commit themselves to

turning those forecasts into reality – and to contribute intelligence to next year’s forecast in turn.

 
 
 
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