Predictive Forecasting: The Key to Better Financial Planning and Forecasting
In the last blog we wrote about the importance of taking into account the company or business rhythm in the forecasting work. In this blog, we discuss a little more how to take advantage of predictive forecasting.
Companies have used predictive analytics for a long time, for example to detect fraud, optimize marketing campaigns, strengthen their business operations and minimize various types of risk. Only in recent years have predictive analyzes started to be used more and more in financial planning and forecasting.
Many companies today struggle with their processes around budgeting and forecasts. Several switch to rolling forecasts to avoid the start-and-stop behavior of budget management. Rolling forecasts are good and can be advantageously supplemented with predictive analyzes (predictive forecasts).
Predictive forecasting involves systematically using data, statistical algorithms and machine learning to predict future behavior based on historical data. Many companies showed great interest in working with forecasts based on predictive analytics several years ago. Then came Covid and made almost all the data corrupt. It could no longer be used. Now some time has passed and historical data has again become more reliable. In addition, they have found ways to deal with sudden changes that are more of a "one off" nature.
If you have access to a modern budget/planning tool, you probably have access to predictive forecasts. We recommend that more people start testing the functionality in their own business. A good way is to supplement the regular, manually prepared forecast with a predictive forecast
Combining rolling forecasts that are adapted to the company's rhythm with predictive analysis creates a better basis for decisions and hopefully a better discussion about and understanding of the business.
In the next blog, we will write more about why it is important to look at trends instead of outcomes vs. budget when following up the business.
Psst: Did you know that Ekan Management facilitates a network with a focus on dynamic management/beyond budgeting aimed at economists at companies in the Stockholm region? Contact Julia Viklund if you are interested in participating.
Ekan is also Sweden's representative for the international network Beyond Budgeting Round Table (BBRT). Contact us if your company is interested, and we will tell you more about what membership entails.