In this blog, we often discuss the benefits of forecasting and reforecasting to adjust your budgets. While navigating uncertainty is something all leaders face, reforecasting can help bring some control to your finances and perhaps even stabilise your business or bring new opportunities.
However, many businesses still avoid this practice despite all of its benefits. Some see reforecasting as a failure, while others cite efficiency and time. But we don’t forecast the weather once a year, then why do we forecast the business?
There are a few best practices to take in consideration when planning your reforecasting routine that can make this process more effective.
When to Reforecast
Most of the businesses produce a well-rounded forecast together with their annual budgets, which helps set those budgets and adjust predictions. However, it is very unlikely that those predictions are entirely accurate and understanding that internal and external forces affecting your business can change is incredibly important. And these changes don’t just happen once a year, they are daily, weekly, monthly and this is the key to understanding the reason behind reforecasting.
Once the annual budget is approved it should be monitored closely. Many firms now use monthly budget-vs-actual reports showing major line items and variance between the budget and year-to-date results. And every time this is done, it is a good time to reforecast your annual financial predictions to compare where the organisation is standing financially based on your earlier predictions. This exercise not only helps to improve your forecast accuracy every time you do it, but it also helps to establish your business position in relation to your earlier predictions. Such forecasting will aid a firm in helping to get a better idea of where you will end the year, you will also be able to find out how far you are from your previous predictions and why.
Reforecast with KPIs in mind
While there are numerous factors that can affect your forecast, it is crucial to consider what KPIs are included in this forecast. One can face a load of problems when trying to remeasure your predictions, especially if there is a huge disconnect between measuring everything that can be measured and everything that should be measured. There are many KPI best practise strategies to follow, but one thing is sure, know your organisations’ performance indicators and track them.
Just like your annual forecast, monthly forecasts should include a collaboration of data from all departments that produce meaningful performance indicators.
In order to improve the efficiency of reforecasting pre-empt the data you will need and set best practices and where possible automate and streamline the process.