Common forecasting errors and how to avoid them

“There’s no way that’s right”

That’s a statement no finance person wants to hear about their forecast when reviewing with their business partners or senior leadership.

But getting pulled in millions of different directions makes it easy to overlook obvious forecast errors.

And after more than a decade of building and reviewing forecasts, there’s a few common errors I continually see.

Let’s explore what those errors are and how you can avoid them:

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Error 1: Not prioritizing accuracy

This error is a fundamental error.

Meaning it’s not technical in nature, but is rooted in an incorrect mindset.

After more than a decade in FP&A I can confidently say that the most important thing we can do for a business is produce an accurate forecast.

If you disagree, keep reading…

My take of a CFO’s main role in an organization is to ensure the business is maximizing the shareholder return through financial management. This is primarily done by leveraging forward-looking financial projections and interpreting those through the lens of the business strategy.

While I’ve personally never been a CFO, I’ve been around long enough to get the gist.

Not convinced? Read this snippet from Investopedia:

Within the CFO function, FP&A is uniquely positioned to accomplish the task of analyzing and forecasting financials for strategic decision making.

At our core, we are a forecasting organization.

We leverage historical financial data, mix it with business context, perform root cause analysis on it, make our best guess of what we think will happen next week/month/year, then help the business make the next best decision with that information.

And if we can accurately do this, we can reduce volatility in the business - which makes our investors/debtors happy and increases the value of the business.

Therefore, an accurate financial forecast is the foundation for a more valuable company.

Error 2: False precision

Wait, I thought I was supposed to care about accuracy?!

Yes you are. But there is a point of diminishing returns when it comes to chasing more accuracy.

I know this because I’ve personally spent [hundreds of] hours chasing after what I thought was a better forecast, but turned out to be less accurate.

So I’ve learned from my mistakes and developed a simple framework to help you avoid it:

When outcomes are Known and Knowable, it typically makes sense to build these into your forecast.

But where FP&A teams get tripped up is typically in the Not Knowable category of forecast drivers. Instead of stopping at good enough (typically 80% accuracy with only 20% of the effort), they’ll continue to try to predict that last 20% of the accuracy.

Sometimes this is warranted. But typically it’s overkill.

And those dozens of hours you’ll spend building a sophisticated forecast model or trying to integrate every department perfectly often doesn’t actually yield an improvement in forecast accuracy.

And all we care about is accuracy even if we get there the easy way…

Go through each forecast driver you have and note which category it falls under.

Then determine where you need to spend a bit more effort (Known and Knowable) or back off from your false precision (Not Knowable).

Error 3: Siloed forecasting

As a business becomes larger, it’s easy for the different corners of the organization to become less connected.

And there’s a very specific word for this…

It’s one of the most dreaded corporate buzzwords: silos

It’s the reality of one team or business unit not communicating with others or proactively sharing information. It can also manifest in disconnected strategy decisions and forecasting issues.

Here’s a few examples of siloed forecasting:

• Sales is running a Q4 promo but doesn’t tell the implementations team. This causes a poor onboarding experience since there weren’t enough resources to implement the new customers.

• Marketing is testing a new pricing strategy that is bringing in a less profitable customer segment. The finance team is unaware and only finds out when they observe margin decreasing.

• Product commits to a revenue increase from a 2026 product launch, but doesn’t confirm with the engineering team to ensure there are resources dedicated to work on the project. The engineering budget is understated significantly for 2025.

It should be clear that the main way to avoid this is continuous conversation about strategy and plans at all levels of the organization.

You’ll never have perfect forecasting alignment (especially as a business grows), but that doesn’t mean it’s not worth aiming for.

Build a cadence of reviewing the forecast and strategic roadmaps by department as a whole leadership team to avoid as many issues as possible.

In summary:

You don’t have to use advanced techniques to be great at financial forecasting.

Instead, focus on how you view FP&A’s purpose in a forecast without getting lost in the details.

Then relentlessly pursue an integrated forecast process with increased quantity/quality of communication.

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