We often talk about forecasting techniques, hacks, and tips for those who are new to the industry. But what about those that produce forecasts daily? Ever wondered why some forecasters and analysts just seem to rock financial planning and speak the language of sales and marketing too.
The difference between success and failure in forecasting may not depend on intellect as much as you’ve thought, but on changing your mentality and polishing some of your strategic leadership skills.
Let me take you through the 5 characteristics of a smart forecaster that are necessary to succeed today.
1. Clear strategy
Businesses often claim to have good and clear strategies, but they are more often nothing but financial goals and benchmarks. Another common issue with business strategies is that it is often based on “c’mon guys we are the only x away from reaching our ideal y”, which rarely motivates people and is hardly a clear strategy for a business.
Instead, we recommend using a strategy technique suggested by Graham Kenny in HBR, which suggests that you should identify your stakeholders as those who have influence over your business and thus you should nurture them.
Those that don’t have a clear strategy will end up facing significant difficulty to operate, plan and deliver performance. In today’s economic landscape, teams need the most reliable and relevant insights into risks and opportunities that their businesses are about to face.
2. Know your data
Bad data produces bad results! A smart forecaster knows the extensiveness, currency, accuracy, and representativeness of the data available. More data tend to improve accuracy and more detailed data can prove to be more valuable, but it is important to use relevant data.
However, not all of the organisations are able to utilise this information to its full potential. The problem is that collecting the business data without a proper way to read it, understand it and apply it, costs your business money.
A smart forecaster will take advantage of all of the tools a business has. This way they can keep track of your business progress and output quality.
3. Scenario planning
Strong scenario planning is another tool in the smart forecaster’s arsenal. Using trends and uncertainties in business scenario planning can help to accommodate business growth and resource allocation to improve decision making and development. Scenario planning is a great feature of financial forecasting and budgeting that enables a business to evaluate a variety of possibilities and prepare for them however they find applicable.
A smart forecaster will use this tool in his arsenal to help drive a forecast forward and pave the way for potential future outcomes. Whether you are using the more technical terms for strategy or not, your business has a direction to go to, and scenario planning helps you ensure that you are prepared for what life can through at you.
4. Realistic expectations
While accuracy is a forecasters dream, one cannot expect the forecasts to be 100 percent accurate. Every smart forecaster knows that every forecasting technique will fall within a range bounded by the average percentage error. A smart forecaster knows that no one is cable of making an exact prediction.
There is also a very real danger of models driven only by data, and not actually capturing potential outliers by inputting data from a subset of reality. This is a big problem in finance when people might use a short history only covering a special period in history that fails to capture all the nasty cases.
5. Include other departments
The key to a successful collaboration strategy is to maximise the value of the business knowledge you already have within your business. A smart forecaster knows, that a lot of your forecasts results will depend on the actual market volatility, demand for the product, popular trends, and a forecasters’ bias.
Therefore, to avoid that they integrate other business departments to aid the pursuit of the business future. For example, including a marketing team in your scenario planning can prove o be very valuable as they already know the market and the competitors, perhaps even more than anyone in the business.