Planning and forecasting helps businesses plan for future growth while preparing for possible hurdles and changes in the economy. Developing a forecasting model can be difficult because even the most careful planning and calculations can be thrown off by unexpected events. The COVID-19 pandemic is a dramatic example. With the rate of economic recovery still very much up in the air, forecasting the next month, let alone the remaining half of 2020 or the next few years, is going to be far more challenging. Businesses must adapt and take advantage of available technology so that their forecasting becomes a more malleable tool that allows them to quickly update plans as new data points fly in from around the globe.
One of the first action items to take when evaluating your approach to business forecasting is to assess your forecasting tools. Here are some questions to consider when assessing the tools you use in business forecasting.
After assessing your current approach to business forecasting, re-prioritize your tools and costs. This will help businesses focus on more important tools and costs that may not have been in the original model.
Even before the pandemic, simply budgeting an X% increase in sales and Y% increase in costs while fixed costs remained constant was becoming a thing of the past. Companies need to focus on building a forecasting tool that allows for current and relevant sensitivity analysis. The sensitivity analysis can no longer be only about how many widgets you sell in a year and how many people you have working for you. In today’s world, technology is creating change more rapidly than ever before. In the same way, that speed makes it possible for businesses to get newer, more accurate data more rapidly to better ride the waves of change.
Here is an example of how forecasting has changed in just the last few months. The pandemic has resulted in a re-prioritization of costs. Costs that, in the past, might have been insignificant or at least lower priority concerns, are becoming key drivers of how people will conduct business and retain and attract talent for their companies in the future. Lower priority costs may include (but are not limited to):
These were not factors that many considered in the past while developing forecasts, when office space was the priority and working from home was done occasionally. Things are very different now and business forecasting needs to take into consideration how the above factors have changed and will further change their operations going forward.
Once businesses have re-prioritized their tools and costs, it is time to update the forecasting model.
For more effective forecasting, businesses must update their approach and use cloud technology that can mine a richer variety of data from a greater number of sources. Businesses need to examine how the pandemic has changed customer demand, habits and expectations, and how it has affected market supply of materials, goods and services. Which industries are thriving and which are suffering? Which businesses will either temporarily or permanently change how they operate and are there any that have gone away permanently? All these factors will affect staffing, financing and other management decisions, so it is vital to have access to up-to-date, pertinent data in order to achieve more reliable forecasting results.
As the economy reopens, data likely will change quickly; depending on type of industry, geographic location and how businesses are adapting to reopening. Having frequent discussions about trends and updated data, obtained through increased deployment of technology to automate and speed up data-collecting processes, will help improve planning. Businesses that have not yet used Artificial Intelligence (AI) in their forecasting should begin examining ways in which they can adapt their processes to involve AI. This is necessary if businesses want to spend less time analyzing data and more time responding to what that information is telling them about the future. Switching to cloud-based planning solutions will offer even more accurate knowledge.
Smith and Howard can work with the management of your company to perform cost analysis and business continuation planning. This ensures your financial forecasting model, you have the flexibility to plan for variables affecting your business.
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