Why the Evolution of Financial Forecasting is Picking Up Speed

August 3, 2021 | Evan Webster  
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CFOs are becoming more proactive about helping organizations see what the future holds. 

Clark Patterson Lee sounds like it’s in good hands with Jen Rees.

The architectural and design firm’s CFO was among the financial leaders recently profiled in the Rochester Business Journal, where she discussed how she used scenario planning to figure out what acquisitions or divesting of certain business lines would mean for the company. The same article also quoted an expert from Deloitte who suggested this future-looking focus is where modern finance needs to be.

“One of the most important areas of focus is to improve the forecasting process,” he said. “The tools that we have today can be helpful in that process of forecasting, as well as in closing the gap in performance between the forecast and the reality.”

It’s not just a case of deploying the tools, of course. It’s also a matter of figuring out how best to change the process of managing information. A research paper from SAP goes into the subject at length and does a good job of outlining some of the fundamental questions CFOs and their teams should be thinking through as they get started. These include:

  • What data or information needs to be easily and quickly accessible?
  • Is data entered more than once to update several non-integrated systems?
  • What’s at risk regarding security?
  • Is there a ‘single source of truth’ providing a full, accurate and real-time picture of the business finances?

Once you’ve answered those questions, you’re still not done. Even as you make use of the technology and transition to new processes, forecasting is an art that requires you to be ever-aware of possible factors that could throw everything off.

Though aimed at institutional investors, Australia’s Investment Magazine published an article recently by a behavioral finance consultant who identified some of those factors.

While demographic forecasting can be pretty straightforward, he said, what CFOs have to do is arguably a lot tougher:

(Can) companies forecast the outcome of projects or acquisitions? Depending on the context, not reliably, with systematic deviations being underpinned by a range of factors; such as being seduced by the narrative of the project or investment and under-weighting the importance of the ‘outside view.’

And yet, as they get more comfortable and experienced with new technologies and processes, you can see how finance departments are in an ideal position to counter those potential biases. They can resist being seduced by the narrative. While still working internally, they can provide that important outside view. Investment Magazine’s article was titled, ‘A budget is only as good as its forecasts.’

You could soon say your forecast is only as good as your CFO, and more and more of them are like Jen Rees — actively working to become great.

The post Why the Evolution of Financial Forecasting is Picking Up Speed appeared first on Blog | Vena Voice | Vena Solutions.

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