Tag Archives: financial performance management

Vienna calling!

Harald Hornacek

A famous host: Harald Hornacek

Greetings from Vienna: home of the schnitzel, yummy dumplings and lot’s of amazing history. But Vienna is also the hub of many successful companies. Today is the third European IBM Finance Forum 2011. We have had a great day so far. Lot’s of attendees from the Finance & IT departments of different Austrian businesses and government agencies. The agenda here is once again packed with Finance content. And as in all the other locations, we also have some great speakers. The event in Vienna is hosted by Harald Hornacek, chief editor of the popular business magazine Succeed. The magazine is distributed by Austrian Airlines and flyers love it for its fresh and meaningful content. Harald is quite famous in the Austrian and European business community for exactly that reason. The attendees have a great time listening to his insightful comments and questions. But let me back up for a quick second. There was another Finance Forum in Zurich last week.

HIGHLIGHTS IN ZURICH

The Dolder Hotel, Zurich

The Finance Forum Switzerland was held at the famous and gorgeous Dolder Grand hotel. It is situated high above the city with breathtaking views left and right. Steve Morlidge, the author of ‘Future Ready‘ delivered a refreshing keynote about best practices in forecasting. He will be speaking at many different Finance Forums across Europe this year. We also had a customer speaker from a 500 year-old company (can you believe that?): Mr.Binzegger from Orell-Fuesseli talked about their innovative use of SPSS software to develop highly accurate credit ratings for companies. We also heard Mr Wirth from Nycomed talk about how to build an effective reporting and information strategy in a global environment. The Dolder Hotel staff also served up some amazing food and coffees during the break. Great event.

VIENNA CALLING

Back to the event here in Vienna. It’s been a bit of a mad rush for me in the background. I left home on Sunday morning to run two Rolling Forecast workshops with close to 40 CFOs from different companies in the Middle East on Monday and Tuesday. Wednesday morning we found out that one of our customer speakers in Vienna ended up calling in sick and I jumped in with a different presentation last minute. We are about to start a panel discussion between different customers and experts.

NEXT STOP BUCHAREST

Hopefully you will get the opportunity to join one of the IBM Finance Forum events in the next few months. As you can see, we always have great speakers, great content and also lot’s of valuable discussions. Knowledge exchange and networking is a critical part of this. My next event is scheduled for May 4th in Bucharest. To see more photos from all the different events click HERE. See you soon!

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Vienna: Vista 3 - The location fro Finance Forum

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Finance Forum: Many great discussions

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Collaborative BI: A real-life scenario

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Finance Forum – EMEA v1.0

Just a quick hello from the road. It’s one of those very exciting yet extremely busy weeks. The IBM Finance Forum events finally kicked off in Europe. The first event was held on Wednesday in the beautiful town of Wiesbaden in Germany.

Which door would you take?

Wiesbaden is known for three things: It is the capital of Hessen, there are some natural springs that have healing effects and there is one of the few well known casinos in Germany. It is the beautiful casino building in the heart of Wiesbaden where the first Finance Forum for the season kicked off. We had a great crowd of well over 250 finance & IT professionals. I had the honor to deliver the IBM keynote. Delivering the keynote at these events is always exciting. But it is especially exciting this year: there are so many great and game-changing things to show.

Apart from many interesting customer & IBM speakers, we also have a few really interesting external keynote speakers. In the US, David Axson will be delighting the audiences. He is a true performance management visionary and inspirational speaker. Make sure to check out his latest book called ‘The Management Myth Buster’. In Europe, Steve Morlidge (author of the book ‘Future Ready’) will be sharing interesting insights about how to improve your forecasting processes. And there are some other speakers as well. Stay tuned for updates. Check out this link to find out about all the dates.

Below are some impressions from the day. I really hope to see many of you at our upcoming events. My personal schedule is update on this website.

Soundcheck at 7:30am

How cool is that? Multi-touch planning powered by TM1.

The Kurhaus in Wiesbaden...how nice is that?

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A conversation with the King of KPIs – David Parmenter

DAVID PARMENTER

Two winters ago, I traveled to Prague to speak at a large conference about Performance Management. As the taxi approached the hotel which was set beneath the breath-taking castle, I felt a sense of excitement: I was just minutes away from meeting a king for dinner. Not any king. Not a member of the scandal-ridden European royalty houses. No, I was about the meet a true thought-leader in the performance management community. His nickname is ‘The King of KPIs’. I am of course talking about the management guru and author, David Parmenter. David was one of the other speakers at the conference and we had the opportunity to exchange some thoughts ahead of the conference.

For those of you who do not know David Parmenter, you are really missing out. David has authored a number of bestselling books like ‘Key Performance Indicators – developing, implementing and using winning KPIs’ and the ‘Pareto’s 80/20 Rule for Corporate Accountants’. He is also a great speaker who truly knows how to inspire his audience.

Earlier this week, I had the great opportunity to re-connect with David Parmenter. He is about to publish a new book called ‘Winning CFOs: Implementing and Applying Better Practices’.

Christoph Papenfuss: David, your new book focuses on providing CFOs with hands-on advice for increasing the performance of their companies. What prompted you to write this book?

David Parmenter: I have been increasingly aware that many CFOs are not finding enough time to keep abreast of best practice.  They are spending a disproportionate amount of their time putting out fires. The “winning CFOs” book is an update of the Pareto book including additional material that a CFO would need to know in order to be a leader and business partner.

Christoph Papenfuss: In the past, CFOs spent a lot of time on developing a detailed annual budgets. But the increasing volatility has shifted the focus away from fixed budgets towards flexible plans and forecasts. Why should CFOs consider moving towards a more flexible forecasting approach?

David Parmenter: As I say in the book, “The standard annual planning process takes too long, is not focused on performance drivers, is not linked to strategic outcomes or critical success factors, leads to dysfunctional behavior, builds silos, and is a major barrier to success. By 2020 there will be few progressive organizations using the annual planning process to allocate resources. Quarterly rolling planning will be embedded and we will; all look back and wonder why we ever did annual planning.  As a CFO you need to be abreast of this change and ensure you are not one of the doubters who claim the “world is flat”.

Christoph Papenfuss: Many business managers are literally afraid to submit a realistic forecast as they fear repercussions in the form of higher targets or poor performance reviews. As a result, we find that many organizations submit forecasts that mirror the plan. What can CFOs do to encourage objective and honest forecasts?

David Parmenter: There has to be a major shift in the way we set up performance based remuneration, away from rewarding progress against a future target to measuring performance retrospectively based on relative measures. Secondly there needs to be a paradigm shift in the way we forecast.  There needs to be a separation of targets from forecasts and a rule that a forecast should tell the truth and not what we want to hear.  Both of these issues are discussed, at length, in the book.

Christoph Papenfuss: Even today many finance organizations are highly dependent on spreadsheets for compiling their monthly forecasts and reports. What is your opinion on that and how do you see this changing in the future.

David Parmenter: Being an expert in Excel is career limiting and should be removed from your CV.  It is like applying for a job as a test driver at Ferrari and having on your CV a gold medal for driving a horse and carriage.  All accountants, including CFOs, need to have on their CV, a statement to the effect that they have a working knowledge of a forecasting software.

Christoph Papenfuss: Many thanks for taking the time, David. We are all looking forward to reading your new book.

You can learn more about David Parmenter and his work on his home page. His new book is scheduled for release on April 5th, 2011.

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Two days @ the Gartner BI Summit

London Heathrow, Terminal 5. 6pm GMT. I am tired. Really tired. Museum visits, shopping trips and conference whirlwinds belong to a category of highly rewarding and fun activities, yet they also belong to the category of activities that can only be classified as “Holy smokes, why am I so exhausted?” type of things.

THE GARTNER BI SUMMIT

Gartner does a fine job of producing highly relevant and engaging events. The 2011 EMEA Summit was no different. Over 700 people attended the well organized event at the Westminster Plaza hotel in London.

OPENING DAY

The opening day offered some great presentations. I liked the Gartner keynote which highlighted some of the key themes that are happening in the market. A few interesting things that came up include:

  • 62% of all EMEA organizations have a BI strategy. That is a positive change from the prior years.
  • BUT…only 1/3 of all organizations have a real BICC. But Gartner highlighted that a BICC is somewhat of a ‘secret sauce’ for success in BI.
  • Organizations are very interested in Predictive Analytics, In-Memory, Master Data Management & Dashboarding
  • Success means going for BIG BI: not just platform but rather a complete view of people, process & technology.

PANEL DISCUSSION

Nigel Rayner hosted a great and fun panel session with participants from the main BI vendors. Peter Griffiths represented our IBM Cognos team. Nigel did a great job with the panel and he got the audience actively involved by voting on certain topics. A few interesting points:

  • iPads everywhere

    A big majority of the participants believe mobile BI will play a huge role in the future. Not a big surprise.

    Collaboration & social media will change the game for BI

    Many people believe that a large portion of BI spending will go SIs instead of software vendors.

  • 90% of the audience members believed that predictive analytics will become accessible to a broader user spectrum
  • Many delegates are unsure whether BI hardware & software should be bundled

OUR KEYNOTE & WORKSHOPS

On the second day of the conference, Leah Macmillian and I delivered the IBM keynote. It was great to see so many people in the room. We spent almost 50% of our allocated time on showing Cognos 10. Many people in the audience seemed surprised as we were the only vendor to show product. A bit of a surprise to me. Why would you spend so much time talking about future direction instead of showing what you can do now? Everybody has great ideas but at the end of the day we need to deliver value now. Right? No surprise: We did get a ton of questions following our presentation.

CONCLUSION

Kudos to Gartner. It was a great event. Excellent content and excellent participants. I really enjoyed the networking with so many great people. It was cool to see that our IBM portfolio pretty much covers all the main trends that were discussed at the Summit: Mobile, Collaboration, In-Memory, Predictive Analytics etc.. Cognos 10 is a great platform. Gartner’s assessment of IBM’s position in the market clearly highlighted this.

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Three things every controller should know about forecast accuracy

Forecast Accuracy

Forecast accuracy is one of those strange things: most people agree that it should be measured, yet hardly anybody does it. And the crazy thing is that it is not all that hard. If you utilize a planning tool like IBM Cognos TM1, Cognos Planning or any other package, the calculations are merely a by-product – a highly useful by-product.

Accuracy defined

Forecast accuracy is defined as the percentage difference between a forecast and the according actuals (in hindsight). Let’s say I forecast 100 sales units for next month but end up selling 105, we are looking at a 95% accuracy or a 5% forecast error. Pretty simple. Right?

And why?

Why should we measure forecast accuracy? Very simple. We invest a lot of time into the forecast process, we utilize the final forecast to make sound business decisions and the forecast should therefore be fairly accurate. But keep in mind that forecasts will never be 100% accurate for the obvious reason that we cannot predict the future. Forecast accuracy provides us with a simple measure to help us assess the quality of our forecasts. I personally believe that things need to get measured. Here are three key benefits of measuring forecast accuracy:

  1. Detect Problems with Models: Forecast accuracy can act like a sniffing dog: we can detect issues with our models. One of my clients found that their driver calculations were off resulting in a 10% higher value. A time-series analysis of their forecast error clearly revealed this after just a few months of collecting data.
  2. Surface Cultural Problems: Accuracy can also help us detect cultural problems like sandbagging. People are often afraid to submit an objective forecast to avoid potential monetary disadvantages (think about a sales manager holding back information to avoid higher sales targets). I recently met a company where a few sales guys used to bump up their sales forecast to ‘reserve’ inventory of their hot products in case they were able to sign some new deals. Well, that worked ok until the crisis hit. The company ended up with a ton of inventory sitting on the shelves. Forecast accuracy can easily help us detect these type of problems. And once we know the problem is there and we can quantify it, we can do something about it!
  3. Focus, focus, focus: Measuring and communicating forecast accuracy drives attention and focus. By publishing accuracy numbers we are effectively telling the business that they really need to pay attention to their forecast process. I have seen many cases where people submit a forecast ‘just because’. But once you notice that somebody is tracking the accuracy, you suddenly start paying more attention to the numbers that you put into the template. Nobody wants to see their name on a list of people that are submitting poor forecasts, right?

BUT……

Overall, forecast accuracy is a highly useful measure. But it has to be used in the right way. We cannot expect that every forecast will be 100% accurate. It just can’t be. There is too much volatility in the markets and none of us are qualified crystal-ball handlers. There is a lot more to consider, though. Over the next few days, I will share some additional tips & tricks that you might want to consider. So, start measuring forecast accuracy today!

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Cool software? The Connected Business – Part 3

Yeah, those spreadsheets. Welcome to part 3 of this series of posts. An interesting special section in the Financial Times prompted me to post a quick summary with interesting quotes. But the report did not necessarily provide some specific details about why spreadsheets make our lives difficult. Part 2 then focused on the particular pain points we all experience in our daily business lives.

THE PROBLEM & ANSWER

But how exactly does Business Analytics software help and how can we replace spreadsheets? I get very frustrated when I read white papers that talk about ‘gaining efficiencies and critical insights with the push of a button’. There is so much BS talk out there. And as a result, I find that there are many managers out there that still don’t understand what technology can do for them. It’s time for clarity, isn’t it?

A FAIRY TALE?

Let’s take a look at one of my clients. When we first met, the new CFO was extremely frustrated with the tedious annual budgeting process. A team of six well paid finance professionals spent almost seven months pulling the annual budget together. The entire process was run through spreadsheets. The team spent an awful lot of time managing the 250 something workbooks for the different cost and profit centers. Complex formulas had to be fixed, data had to be copied & pasted from SAP R3, files had to be distributed and collected, reports had to be manually compiled and reconciled. In other words: it was painful and the team of six had very little time to do something fun. Their workload was extremely close to the picture we discussed in part 2 of this post.

HERE COMES THE SOFTWARE

The CFO decided to do something and selected Cognos to help automate the budgeting process. It was actually a rather short project with only 35 business days for the expense budget. Cognos replaced the entire spreadsheet jungle. But why and how did it help exactly. Here are some basic examples:

  • Centralized model maintenance: One of the key issues with spreadsheets is formula maintenance across different workbooks and files. Instead of copying and pasting, BA software allows me to maintain my formulas in a central repository. One change in one place only. That saves a ton of time and also ensures data integrity. How is that?
  • Automated interfaces: Why should we have to manually load actuals or other data from transactional systems into spreadsheets? There is a lot of risk (apart from the boring manual labor). BA software allows you to run automated interfaces. Just like in our transactional systems. Nothing fancy. It just works. And it saves a ton of time and frustration.
  • GPS: One of the other frustrations with spreadsheets comes from the inability to track progress. A simple question like: “Has Ted started his budget?” can be extremely difficult to answer. The file is not on the central server anymore as Ted is out on a business trip (and then he deletes his file by mistake..). BA software allows us to keep track of progress and it stores all the data in a central repository. Again…a very simple thing. But extremely effective. Imagine a spreadsheet with a powerful GPS on the roof!
  • Cool interface: Working with a spreadsheet template can be very frustrating. Either the templates are completely locked down or they are so flexible that I can break them. Modern software provides us with easy-to-use interfaces (web-based). They are actually fun to use and I can customize the layout to my personal needs – all that without breaking the model. This is a great way to engage managers that are not so technology-savy.
  • Automated aggregations: Getting a snapshot of your budget can be a bit tedious with spreadsheets. We need to make sure all files are accounted for so that we can link our master spreadsheet to them and aggregate the numbers. BA software takes care of that….in real time. All the data is stored in a central repository. You need a snapshot? Give me a minute. Here you go!
  • Easy analysis: Performing detailed analysis on a spreadsheet budget can be extremely difficult. Management decides to make some top-down changes and finance then has to figure out how to push this into the different organizational units. Asking some what-if questions can turn into a tedious exercise. BA software allows us to perform analysis in real-time. It’s that simple. We make change somewhere, and we can report on that right away. Cool!

Ok…I admit it. This is probably a bit ‘salesy’. But that’s the way it is. By the way, this particular client is now able to turn the entire budget around in less than 1.5 months. They actually like the budget process (scary thought?) now. It’s nice to talk about this but it’s better to see this in action. Why don’t you come and join one of our global workshops?

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The connected business?

The Financial Times from December 8th 2010 included an interesting special report called “The Connected Business”. A bunch of great articles about technology in the office of the CFO. One thing that caught my attention was the fact that the entire section highlighted the problems caused by the use of spreadsheets.

For people who work in the field of Business Analytics it has long been clear that while spreadsheets are useful, they are not the right tool to manage your company. People like us sometimes take that knowledge for granted. Here are some interesting pieces I picked up in the section.

Nigel Rayner from Gartner is quoted as saying: “But when I talk to them [CFOs] about management reporting, understanding the drivers of profitability, forecasting or planning, all they know are spreadsheets because they have always done it that way. They are not aware of how the technology market has developed.” Andrew Meade from Accenture confirms this notion in another article: “Most companies bemoan the fact that they have a spreadsheet jungle.”

Mr Giles Thomas from Revolver system highlights some of the inherent risks: “Businesses that start using spreadsheets for a specific purpose can get grabbed and they never escape. When you have a spreadsheet with thousands of rows in it, things can get quite nasty.” He highlights this problem with the case of an unnamed investment company: “For several months, they had been running the business on numbers that were meaningless. When people copy and paste, they often forget to incorporate the changes they have made.” The FT then highlights some of the other associated risks like proliferation, tracking, version control etc..

One article raises the question of whether the massive use of spreadsheets is likely to change in the near future. But the somber conclusion is: “He (Mr. John Van Decker – Gartner) and other business analysts do not see this situation changing quickly, because they say most business and finance education does not address these issues“. Mr Rayner adds “It is a cultural issue, because finance folks tend to be very conservative. They are comfortable with what they know, which is spreadsheets, and having an army of spreadsheet jokeys.

The point about education is an excellent one. I used to be an active  member of the Institute of Management accountants (IMA). The organization itself is great and I highly recommend their professional degree CMA (Certified Management Accountant). But they consistently frustrate me with their singular focus on spreadsheets. Hundreds of articles in their publications teach people how to leverage spreadsheets. They offer courses for managing a complex budgeting process with spreadsheets. Time to wake up, from my perspective.

The conclusion? Well, the section does offer some nice examples of how technology helps and I will continue to write more blog posts in the near future about that. But the key finding for me here is the astonishing fact that there is a serious opportunity for all of us. As a CFO I have the ability to gain a serious competitive advantage (or: to avoid disaster) and as a Business Analytics professional I can make a serious contribution to the success of many businesses. Let’s use this opportunity.

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An interview about Performance Management

IBM Switzerland conducted an interview with me a while ago. For some reason, a friend of mine stumbled upon this last week. The interview was conducted in German, but I have attached the English transcript produced by IBM. The Podcast appeared on the Swiss IBM website.

Welcome to the podcast on the subject of optimized performance management. In the discussion is Christoph Papenfuss, director of the IBM Cognos Innovation Center. The interview was conducted by Christian Achermann.

Christian Achermann: „Mr Papenfuss, could you provide us with some information about yourself and your function at IBM?“

Christoph Papenfuss: „Gladly. My name is Christoph Papenfuss. I have been at IBM Cognos for six years. I began my career at Cognos in the USA, in San Francisco, where I managed the consultancy business for our customers on the West coast for many years. In this function, I worked actively together with the customers to implement performance management solutions. Two years ago I returned to Europe with my family to set up the Cognos Innovation Center.”

Christian Achermann: „With which difficulties are finance managers currently primarily confronted?”

Christoph Papenfuss: „We are certainly living in turbulent times, there’s no doubt about that. With the collapse of Lehmann Brothers on 15th September 2008 our world changed, and our finance departments were thrown into turmoil. The year 2009 is of central importance with regard to the finance department. If you look around at how companies are reacting to the crisis, you very often see cost management, active cost management, focus on cash-flow management, profitability of various products etc. and of course risk management. When examining the various areas in which companies are currently active, the finance department emerges as the expert in these sectors.“

Christian Achermann: „At the moment, access to the capital market is rather limited. Despite this, financial resources are urgently required. Which demands does a company need to fulfil to acquire financial resources in such uncertain times?“

Christoph Papenfuss: „It is in fact true, that at the moment, it is extremely difficult for certain companies to obtain new capital. A few months ago, I had the opportunity to meet with the CFOs of large German banks. The general tone at this event was that, in the future, banks want to receive completely reliable and sound information from the companies in which they are considering investing. This information must be provided rapidly, and the banks want to be sure that they are investing in a company that is being capably managed. As I said before, companies today must be in a position to provide the figures very quickly in order to fulfil this requirement. The figures must be available for various scenarios, and the investors of course want the figures to be reliable, i.e. so that as far as possible, there are no surprises. This requires very sound reporting and analysis processes; however, the forecasting processes are also highly important, and it is precisely here that performance management is applied.“

Christian Achermann: „A volatile market environment on the one hand conceals risks which need to be identified and managed, and on the other hand also hides chances which should be exploited. In addition, finance and business managers are under great pressure to take better decisions faster. Isn’t there a contradiction here? How do performance management solutions support the creation of well-founded decision principles and the measures defined on this basis?“

Christoph Papenfuss: „The volatile environment does hide risks, but as has been said, it also hides chances. This fact is unfortunately sometimes forgotten. Let’s take the example of options. The greater the volatility, the more valuable they are. It is precisely this current volatile environment that offers very many opportunities to companies. They can strengthen their position in the branch and generally position themselves better, i.e. implement new measures to strengthen the company in the long term. Let’s take a look at the effect of performance management. At IBM Cognos, we assume that the performance management focuses on three critical questions. What do we accomplish and how are we currently doing? Second question: Why is this so? And the third question is: what should we be doing? Should we stay on the same track or should we change something?“

Christian Achermann: „The IBM Cognos software serves to automate and reorganize financial and operational performance management processes. Could you explain this statement by means of an example?“

Christoph Papenfuss: „One of our very good customers approached us. He was confronted with a succession of negative events, and felt compelled to issue a forecast relatively quickly. The process took the following course. The event was registered. The management team developed a forecast: a global forecast for all finance data. This involved the creation of 150 Excel templates, the manual input of current data from the ERP system into the templates, the processing and sending of these 150 templates to the various business units. The finance departments had to sit down together with all the 150 departments and explain to them how these templates worked. Errors in formulae occurred relatively frequently. The 150 templates therefore had to be collected again to correct the errors, and then be resent. Only then did the actual process begin: the time-consuming collection of data as well as the consolidation of the spreadsheets. This can last hours, or even days. Moreover, specific parameters had to be changed as „what-if analyses“ were necessary. The process is extremely time-consuming. With performance management processes, this is a whole new ball game. Here I can manage my models and templates centrally, i.e. I need only change a formula in one place and I can send it automatically and selectively to specific business units. The business units can then process the templates further, and we as the finance department, support them. The data is then automatically consolidated. In this way I can create my analyses very quickly, or examine scenarios etc.; and all this in real time.“

Christian Achermann: „Which innovative solutions can be expected in the future in the area of performance management?“

Christoph Papenfuss: „Generally, I think we will see a significantly greater focus on the end user. It is a fact: today’s end users are highly qualified. They want and need to create analyses and reports very quickly. Today it is neither possible nor desirable to wait days or weeks for the IT department or other departments to create certain reports, carry out analyses for us or develop databases for us. This means, as an end user, I now need to be in a position to create my analyses personally, independently and fast. For this reason, the focus will increasingly be to provide the end user with an increasing number of and more efficient tools in order to fulfill this need. Naturally, you don’t have to look far for the integration of new technologies such as Web 2.0, mobile technologies and others. Over the coming years, many changes are in the offing.“

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The case for forecast accuracy

People always say that you get what you measure. And it is true. When I want to loose weight and I am serious about it, I do have to step on the scale frequently. The same thing is true for business. What gets measured gets done.

FORECAST ACCURACY

Forecasting has become a critical business process. Pretty much every company that I talk to is either improving or looking to improve this process. One of the measures that can be used to manage the forecast process is forecast accuracy. Forecast accuracy measures the percentage difference between Actuals and Forecast. Let’s say we forecast 100 units sold for next month and it turns out that we actually sold 95, the forecast accuracy value -5%. We can measure accuracy at different levels of an organization, let’s say at the Profit Center level or at the BU level.

EMOTIONS RUN HIGH

A few weeks ago, I had an interesting discussion with a group of consultants. They argued that forecast accuracy is not worth measuring. Their main arguments were:

  • Forecast accuracy cannot be influenced. The markets follow a random path and it can therefore not be expected to achieve accurate forecasts.
  • Forecast accuracy is a dangerous thing to measure and manage. People can start influencing the accuracy by managing their numbers according to expectations (for example sales managers can hold back deals for sake of influencing accuracy)
  • The quality of forecast accuracy is hard to define. Let’s say we beat our own forecast by performing really well. Forecast accuracy is off. Is that good or bad?

MY VIEW

Here is my personal view on this topic.

  • No single measure is perfect when looked at in isolation. Let’s say profits. What does the profit number for a certain quarter tell us? Nothing! We need to look at a mix of measures. Forecast accuracy is one measure that we can/ should look at.
  • Forecast accuracy provides us with the ability to identify potential bias. One of my clients, for example, found that their models were flawed. Forecast accuracy revealed this by highlighting a certain consistency.
  • Markets movements are difficult to anticipate. But it is the job of the forecaster to identify potential actions to make sure that targets are achieved. I should have a general clue about what is happening in my business. Once in a while, we encounter some surprises. Does that mean we should not measure forecast accuracy? I beg to differ. At the very least, a detailed analysis of the accuracy measurements can help us learn a lot about our organization and our environment.
  • Forecast accuracy is easy to measure. It can be automated. Cost are almost zero. Why not measure it and potentially learn something?

I could go on and on. The bottom-line is that forecast accuracy is easy to measure and that it allows us to get a good sense for our ability to forecast and manage our business. But we need to be careful about how we utilize the metric. A singular focus on managing just accuracy won’t do anybody any good. But that’s true for anything. If I want to loose weight, I should also look at muscle mass and water content – not just weight as measured in lbs or kg. But to start bashing a single metric is not a good way. I am all for looking at forecast accuracy – often.

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