Forecasting: Another Victim of the Financial Crisis?

  • The Find: The credit crisis has claimed another victim: forecasting, with managers at nearly half of organizations offering knee-jerk reactions to developments rather than laying out a long term strategy.
  • The Source: Research from KPMG UK.
The Takeaway: When KPMG interviewed senior executives at 203 organizations in early 2009, the researchers found that rather than having a detailed blueprint to guide them through the current crisis, "45 percent of business directors appear to be adopting a head in the sand approach, failing to make strategic changes to their decision making and continuing to pursue the same options for their organization as they were 12 months ago."

With sales falling in many sectors, tough decisions have to be made about how to cut costs and allocate resources, but these same extreme economic troubles that demand attention also make planning difficult, according to Fiona McDermott, a business modeling partner at KPMG:

Accurate and relevant forecasting has been a victim of the credit crisis, as the usual variables that previously went into a forecast are shrouded in uncertainty. Sales volumes, prices and availability of finance can all change dramatically in a short time. Businesses can't even be confident that their main suppliers and customers will be around for very long... As a result, some managers may be tempted to believe that forecasting is a waste of time.
Despite all the recent turmoil, the study also found 69 percent of business directors have not changed the information on which they base their forecasts â€" a mistake according to McDermott who insists forecasts need to be adjusted and "incorporate a wider range of data such as detailed competitor analysis; customer viability studies; energy, raw material and labor costs; macro economic trends; market demand and pricing; and the cost and availability of credit." She concludes that forecasting "is more important than ever,"

The Question: Is your company planning for the future or scrambling to deal with the immediate present?

(Image of forecasting by Gabrial M., CC 2.0)