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Tuesday, April 28, 2009
Analytical Forecasters Needed
The ability to forecast results is now the top concern of US, Asian, and European chief financial officers according to a recent survey of nearly 1,300 senior finance executives by CFO Europe, Tilburg University, and Duke University (CFO, April 2009). That finance chiefs now rank their ability to forecast effectively as their top internal concern is instructive for the future of enterprise management. Other issues, such as working capital management, maintaining morale, and counterparty risk, stood behind forecasting as the top concern. As the global economic crisis continues its onslaught across the enterprise landscape, there appears to be a crying need for experts (and expert systems) in analytical forecasting around the world.
6 comments:
Can you please provide the link to this article or survey? I can't seem to locate it on the web.
"Karajan, J. (2009, May 11), "Top Ten Concerns for CFOs," CFO Europe Magazine, downloaded on May 12, 2009 from http://www.cfo.com/article.cfm/13606188?f=search.
Oh.. That's great news. Would offshore consulting work?
Just the request shows that these CEOs are absolutely incompetent. THere is no such thing as reliable forecasting for economy and business. At best you can producte self-fulfilling prophecies ...
The last two sentences of the above comment are interesting. Firstly, I believe financial forecasting can be accurate. Please remember, with broad financial forecasting you are the "artillery" and not the "sniper" - you only have to come down around the target to kill it. So the objective is not to be a perfectionist.
What often creates poor correlation between the forecast and actual results is that businesses may introduce either aggressive targets into their forecasts or excessive conservatism. Aggressive targets to drive people. Excessive conservatism to protect people. These effects are hard to drive out - but it can be done.
Since forecasts are always uncertain, then forecasting accuracy can never be 100%. Single-number forecasts (one number for each month, quarter or year, etc.) should be replaced by ranges of numbers with a confidence number for each range. For example, instead of showing a simple chart of a revenue-forecast showing a single number for each of the next 5 years, one could instead show a range (e.g. between plus and minus 1 sigma) for each year, with a confidence number next to each range. The maximum and minimum values in the chart can be connected, respectively, to show a nice chart of probable values for each year, along with their confidence values. Also, instead of single-number targets for each period (month, year, etc.) one can establish of range of numbers for each period, within an acceptable level of confidence for each period.
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