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Breaking the Paradigm to Improve Forecast Accuracy

To consistently manage performance, companies need timely and accurate forecasts that can guide decision making and support strategic goals. The best forecasting practices are highly flexible – able to model multiple business scenarios and to adjust to rapidly changing business conditions.

For many organizations, budgeting is a time-consuming, error-prone (and often dreaded) annual ritual. Such rigid and infrequent plans, however, can’t accommodate fluctuations in market conditions, product demand, or volume. All too often, the resulting budget is little more than a glorified expense justification, far removed from predictive decision making.

In today’s dynamic business environment, budgets must be complemented with a frequent and flexible forecasting process. To make the most of weekly, monthly, or quarterly forecasting, organizations must streamline their processes, forecast the right things, and get quick and accurate feedback that helps shape and hone future forecasts.

Streamline the process.

Rather than building a forecasting plan from scratch, businesses using automated planning and budgeting systems get a quick start on the forecasting process. Enterprise planning and forecasting tools can radically reduce the time required to consolidate results; good ones provide the flexibility to make adjustments as organizational goals or market conditions change. The right tools should also provide both historical and baseline budget projections via prepopulated templates that allow managers to focus on exceptions and data oversight. Managers can then spend more time analyzing forecasts and developing plans to improve efficiency.

Break the annual mindset.

Each organization must determine optimal timing for forecasts – Monthly? Quarterly? On a rolling basis, every six weeks or six months? Forecasting is more than reports; a new mindset is a critical first step to more rapid planning and better business decisions.

Forecast the right things.

What you forecast is even more important than how often you forecast it. Which business drivers have the greatest impact on profitability? For example, forecasting a five percent increase in revenue and a corresponding five percent increase in expenses isn’t exactly precise – and it ignores the true drivers of the business. A better question: Why are revenues expected to increase? Are new products being introduced? Is the company attracting new customers? Once such drivers are identified, the organization can build a dynamic forecast based on changes in everything from customers, products, employees, and raw material prices to the weather. Identify and track the right drivers for the most accurate forecasts.

Accelerate the feedback loop.

Collaborative review not only streamlines the forecasting process but enhances accountability and increases ownership. With a rapid feedback loop, managers can succinctly plan for resources, make forecasts more widely available, and capture critical input from the people closest to the business. Quality feedback ensures accurate, up-to-date operational and financial input throughout the cycle.

Collaborative forecasting also improves communication across hierarchies and business divisions. Good forecasting solutions facilitate interaction among stakeholders at all levels, and help managers own and modify common forecasting processes without IT assistance. Best-practice workflow management supports version control to help monitor status, while giving all stakeholders immediate access to the plan. The result? Finance and department managers can collaborate, develop, align, and approve accurate forecasts more quickly.

What happens next?

When executed correctly, forecasting can help businesses streamline processes, adapt to changes, evaluate business drivers, and implement better processes and workflows. Business Analytics Services from SAP can develop and implement a SAP business analytics solution that quickly realizes cost savings, compliance improvements, and strategic advantages that propel performance. SAP consultants can help your organization:

  • Plan, budget, forecast, and allocate resources needed to improve forecasting, while wherever possible easing demands on personnel and the organization.
  • Consolidate, monitor, and report forecasting performance outcomes in accordance with management, regulatory, and statutory requirements; maintain full documentation without disrupting adjacent business processes.
  • Model and optimize profitability drivers that serve overall business goals.
  • Use comprehensive, relevant, and flexible analytics to help improve performance.

For more information on Business Analytics Services from SAP, please visit us online.

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