Put Forethought into Forecasting
6 March 2007 Rob Edmonds
Forecasting has become a buzzword for company directors wanting to stay ahead of the game. Rob Edmonds of Altimus takes a look at forecasting and explains why businesses are taking a big gamble if they put sheer blind faith in technology.
Forecasting is a process that all companies intuitively want to undertake with increasing accuracy. In fact, in a recent survey of over 100 businesses conducted by Altimus, more than 80% of firms said they believed it would make a noticeable impact on their business if their forecasting was more accurate. However with almost half of those surveyed also citing forecasting technology as being too difficult to understand, how will businesses be able to refine the process to be more effective?
Businesses often fall at the first hurdle by failing to clarify what they want to forecast and why. It's elementary that forecasts are generated differently depending on their objectives, but many businesses still make the mistake of taking a detailed forecast created for one specific purpose and re-using it to serve another.
Furthermore, investing time and effort in forecasting unnecessary objectives and aggregating detailed forecasts up to a summary level can introduce distortions. It might appear to be common sense that variations in forecast will even out as they're added up, but statistically, it actually decreases accuracy.
ACCURATE OR EFFECTIVE?
Businesses invest a great deal of time and resources trying to make their forecasts 'more accurate', but there's a marked difference between accurate and effective – the unnecessary pursuit of the former can impact heavily on the latter.
The question businesses should be asking is: "How accurate does the forecast need to be to give benefit?" or even better: "How inaccurate can it afford to be before it starts impacting the business?" The dilemma here is that any attempt to make a forecast any more accurate than this is a waste of resource, but any less accuracy and it will have a profound business impact. The skill, in this classic trade-off between cost and value of information, is in recognising that medium.
A recent survey uncovered a number of unexpected statistics – the most alarming is that a staggering 82% of executives simply aren't aware of how their forecasts are generated. This fundamental lack of knowledge about the mechanics of forecasting is putting businesses at risk.
The very purpose of generating forecasting information is to use it as a basis for making vital business decisions about operational performance and strategic direction. How can meaningful and actionable interpretations of this data be made if there is no appreciation of the process from a statistical standpoint and if sheer blind faith is placed in technology?
Similarly, how will executives know if the process is producing inaccuracies or if the forecasting algorithms need to be fine-tuned, especially as 90% of those surveyed found the entire process too complex?
With more than 80% of executives unhappy with the accuracy of their current forecasting capabilities and many businesses struggling to find the time, resource and expertise to focus entirely on the forecasting process, it's not surprising that 100% of those surveyed expressed interest in finding a specialist solution for improving forecasting potential.
In response to this demand Altimus is launching an online forecasting service, a readily accessible and trustworthy resource that allows firms to upload their data on a pay-per-use basis and take advantage of best-in-class software and dedicated professionals as and when they require it.
This negates the need for companies to spend extraordinary amounts of money on licences for expensive forecasting software packages, most of which merely lie unused and have to be maintained, as well as cutting the cost of employing and training staff to carry out the process and decode results.
Businesses have the option of choosing between three tiers of forecasting packages; the basic forecast and analysis 'Result' tier, the forecast, analysis and written briefing of 'Result Plus' and the premiere service of 'Consult', which includes a comprehensive forecast and adds an hour-long telephone consultation with a forecasting expert.
To get maximum value from the data forecasting techniques need to be continually adjusted. Technically trained experts with an in-depth knowledge of both forecasting principles and the statistical and manual techniques that support them will be on hand to use that expertise to generate a more effective forecast.
The key benefit of this service is that with greater understanding of the technical process, it is easier to communicate the process and the results. This allows the experts to present their findings in such a way that it allows those in a position to action them to understand exactly what the data is revealing and to identify the real 'bottom line' result.