A CFO’s Perspective: The Role of Economic Intelligence in Financial Forecasting

Last Updated: January 29, 2021

CFOs are in an ideal position to help their organization leverage the benefits of economic intelligence.

But how do you get started, and what can your business expect to gain?

This three-part series, “A CFO’s Perspective,” brings to life the experience of Doug Garis, then Division CFO at Masonite International. Doug shared his journey building an economically intelligent organization with a roomful of CFOs at the 2019 CFO Live conference.

In part 1, we cover Doug’s take on the role of economic intelligence in financial forecasting. Part 2 looks at how the Finance organization integrated economic intelligence into the planning process. And part 3 highlights the many ways the manufacturer has benefitted from having a clearer view of future market demand.

Economic Insights for Financial Forecasts

Like so many CFOs, Doug felt the pressure of forecasting “without an adequate view of the future.” There were gaps between plans and performance, and no standard tools or benchmarks to help tighten top-level financial projections.

Doug’s search for best practices around forecasting led him to Prevedere and the predictive power of economic intelligence. Doug has used Prevedere’s technology and services to improve financial planning and forecasting in five significant ways:

1. Setting a directional benchmark for forecasts

Doug credits economic intelligence with helping Finance provide an objective baseline for business planning and forecasting. The team uses Prevedere to identify which economic factors directly influence revenue and what signals they are sending about future sales. As a result, “we’ve got a much better sense of where the business is going.” In fact, one of the first forecasts to incorporate economic insights was at least 50% more accurate, according to Doug.

2. Shifting to more data-driven decision making

Doug said a data-driven economic baseline forecast “takes a lot of the smoke out of the planning process.” It’s grounded in market realities and leverages predictive analytics, AI and machine learning. He recounted the story of the sales rep who predicted a downturn in sales whenever his arthritic knee flared up. Economic intelligence provides a fact-based counterweight to these not-so-scientific approaches to forecasting.

3. Providing strategic performance guidance to the business

CFOs who can alert the business to upcoming headwinds and tailwinds are valuable strategic partners. Their guidance can help leaders get ahead of market risks and opportunities. Doug stressed the importance of sharing economic insights with his senior executive, supply chain and sales teams. He said the sales organization adjusts its strategy and resources based on “whether market factors are going to be much more aggressive or conservative.”

4. Confirming—or disproving—popular planning assumptions

Many organizations have long-held assumptions about what drives their business. Sometimes they’re right; often, they’re wrong. In Masonite’s case, the Prevedere solution validated the relationship between housing starts and the company’s residential business. At the same time, Prevedere uncovered new factors behind the business’s slower-than-expected recovery following the 2008 housing crash.

5. Building confidence and credibility in financial outlooks

Missing your numbers is no fun, especially for a public company. Doug said that taking economic factors into account “put more confidence behind our short and medium-range planning.” Plus, it’s easier to explain financial outlooks to the Street or the Board. Telling a story that investors “know to be true from a market-based standpoint is inherently value-add to the organization,” Doug noted.

Embracing Economic Intelligence

The accelerating pace of change is a constant challenge for today’s CFOs. Understanding when and how economic factors will impact your business can be a real advantage in these volatile times.

For Doug, economic insights pay big dividends. They’ve allowed his organization to advance a more data-driven approach based on a standard, directional benchmark that reflects the latest market conditions. The business can make tighter forecasts that people get behind.

As Doug told his fellow CFOs from the CFO Live stage, “Any edge that you can build into your process where you have that intelligence is worth its weight in gold.”

Coming Up Next

In part 2 of this series, we’ll look at the steps Doug’s team took to embed economic intelligence into the planning process. Can’t wait for the next installment? Download “The Value of Economic Intelligence: 10 Takeaways for CFOs.” Or, get in touch with our team of experts to discuss how economic intelligence can benefit your organization.