New KPMG report on corporate forecasts

In association with the EIU

 

The key to reliable corporate forecasting is the ability to draw together culture, process and internal and external data into a balanced and cohesive framework enabled by technology, says KPMG International. While getting it right is difficult, it is critical: reliable forecasting is at the heart of the business performance management process and creates measurable business value over the long term.

Commenting on the findings of a report (‘Forecasting with confidence: Insights from leading finance functions’) on corporate forecasting, conducted by the Economist Intelligence Unit and CFO Research, the international accountancy and consultancy organisation singled out “three key areas that need to be addressed and balanced appropriately if the finance function is to lead this change.”

Business leaders need to:

● Apply rigour to the forecasting process

● Use it as a core management tool

● Embed forecasting discipline into the culture and day-to-day activity of the organization.

Leading chief financial officers are able to find the right balance for their organisation. As finance functions continue to innovate and transform their capabilities, reliable forecasting presents an opportunity to drive business value well beyond the ‘walls of finance.’ Forecasting is “a key next step in the business transformation journey as finance organisations focus their attention on performance management, business intelligence, decision support and enterprise risk management.”

 

EIU remarks

For its part the Economist Intelligence Unit team, which carried out the research and analysed the findings, charted the key characteristics of those organisations with the best forecasting record. In the survey commissioned by KPMG, the term “best” is interpreted to mean those businesses which had actual results within 5% of their forecasts. These companies made up about 22% of the enterprises that took part in the survey. According to the EIU these star performers of the art of forecasting all share these traits:

● They take forecasting more seriously i.e. they tend to hold managers accountable for agreed forecasts, they incentivize managers for forecast accuracy and use the forecast for ongoing performance management

● They look to enhance quality beyond the basics i.e. are more interested in further scenario planning and sensitivity analysis

● They leverage information more effectively i.e. they use external market reports and competitive data more often

● They work harder at it i.e. they update forecasts more frequently, are more likely to review the figures formally

● They benefit their shareholders i.e. they attribute lower declines in share price directly to forecasting over the last three years

Note: The report commissioned by KPMG International comprised a global survey of 544 senior executives. Thirty-five percent of respondents were based in Europe, 30% in the Americas and 29% in Asia Pacific. The survey reached a very senior audience; over 30% of respondents were CFOs. Fifty-nine percent of respondents were from organisations with over US$1 billion in annual revenues and respondents were drawn from a cross-section of industries.

To supplement the survey, the EIU conducted a program of interviews with senior executives as well as academics and experts in the field.