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Financial forecasting – How to get it right!

Almost every business struggles with financial forecasting, but help is on the way. We have written a series of articles which introduce the aspects you must take into consideration to get it right.

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Accept that you will never ‘get it right’

“We spend so much time and effort on this process, but we never get it right!” is a typical frustration. Do you recognize this? If so, you are not alone, and we urge you to keep reading … help is on the way.

If by ‘getting it right’ you mean hitting the forecasted numbers, you are in for a realization – and a change of mindset: Accept that you will never ‘get it right’.

No matter the effort, process, or system, you will never be able to predict exactly what will happen.

This said, it can still make a lot of sense to prepare financial forecasts. If done properly, forecasts can provide insights, foster debate, challenge assumptions, and lead to better and faster decision making. And it usually helps with a mindset that resonates with the following statement:

“It is often better to acknowledge that you don't have control and act accordingly, than to think you have it and act accordingly.”
– Bjarte Bogsnes

The world is inherently unpredictable, so we must all learn to live with the uncertainty, and this has several implications.

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Basico quote Re-think the definition of a good forecast. A good forecast is unbiased and provides the most likely outcome based on the current situation, planned actions and assumptions provided. Consequently, at times the forecast will be off compared with the desired targets. But if the forecast (and the process of preparing it) leads to new insights and reveals challenges so that we can act in time, then this is great. Basico quote

Get a sneak
peek:

Here you will find a short introduction to each of the coming articles.

It may be an advantage to think more in terms of what-if-scenarios, and instead of trying to forecast specific outcomes described with precise numbers, we should think in terms of ranges.

01
Purpose
In this article, we will explore the importance of having a clearly defined purpose of the forecast. Who is it intended for, and what are they to use it for?
02
Uncertainty
In this article, we will go deeper into the aspect of the inherent uncertainty, and we will explore what it means for the process and the use of financial forecasts.
03
Format
In this article, we discuss several aspects related to the format or structure of the financial forecast and the process.
04
Process and governance
In this article, we will elaborate on how the issues highlighted in previous articles (purpose, uncertainty, and format) can be supported and reinforced with the appropriate process and governance structure.
05
System considerations
In this article, we combine the findings and reflections from the previous articles and ask ourselves what these mean for the design and choice of forecasting system.
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