Last Updated: June 22, 2018

It’s no secret that many companies today are off on their forecasts. Read any recent news article on the topic, and you’ll likely find that most Fortune 500 executives who missed the mark blamed external factors, such as the stronger dollar, a drop in oil prices or changes in the housing market.

While companies may understand that a correlation exists between the strength of the dollar and their quarterly sales reports, the truth is that when they initially create sales projections, there is usually no proven internal process to determine exactly which factors may or may not impact upcoming performance.

Call it what you will – a gut feeling, historically based assumptions – but typical business forecasting processes are based largely on guesswork. In fact, only 12% of executives feel highly confident in their forecasting processes, according to a survey we recently conducted.

In March 2016, Prevedere commissioned a survey conducted by Gatepoint Research of 100 executives, directors and managers in businesses with revenue greater than $250 million (65% work in Fortune 1000 companies with revenues over $1.5 billion) about their business forecasting processes. We found that most companies are stuck playing a perpetual guessing game when it comes to forecasting. Typically, the forecasting process simply included examining last year’s or last quarter’s data to “guess” the next quarterly forecast.

Here are the top three conclusions from the survey:

• Executives know their forecasts are inaccurate, but don’t realize that the problem lies in the process.

Astonishingly, nearly half of the survey respondents cited they had missed their business targets due to bad or inaccurate forecasting, yet 62% thought their forecasting capabilities were better than average. Time and again businesses are reporting that their forecasts are off, but most executives blame external factors – not the forecasting process itself.

• Executives have difficulty pinpointing key business drivers.

Executives realize that external factors greatly impact business performance. In fact, two-thirds of respondents admitted that external factors have adversely affected the accuracy of their business forecasts. However, despite 77% of respondents depending upon analysts and data scientists, these same respondents still struggle to understand key indictors that impact their businesses. 44% admitted that they either could not or were unsure of how to determine the key drivers of their companies’ performance.

• Accurate, timely forecasting is a major challenge for businesses

Timing is critical when it comes to predicting business performance. Simply reporting the past doesn’t help executives plan for the future. Nearly 60% of executives in our survey reported that accurate, timely forecasts are a major challenge, suggesting that they don’t have the systems and processes in place to gather and leverage real-time intelligence in their forecasting processes.

What’s next?

Without question, businesses are struggling to create the right processes that will help them create more meaningful forecasts. While most companies know their current forecasts continue to be inaccurate, they don’t realize that their processes need work, and if they do, they simply don’t know where to begin.

Sure, it’s helpful to know that the strength of the U.S. dollar impacts your sales, but knowing exactly how and when it will affect all levels of your business – production, logistics, demand and even labor – gives executives a 360° outlook that drives better decisions. With business performance forecasting solutions like Prevedere, executives can take the guesswork out of forecasting and gain the kind of actionable intelligence that produces results.

To learn how Prevedere can reduce forecast error by 50% or more for your organization, contact us.