Your forecast is your greatest tool

A forecast is not an output, it’s a tool.

And like other tools, it’s useful for a specific purpose:

Focusing the business on what matters most.

And while that sounds obvious (isn’t everything we do in FP&A supposed to help with that?), it’s the strongest tool in the toolbox for accomplishing that task.

Here’s 3 ways you can leverage your forecast to create focus in the business:

Changes to forecast

I get irrationally excited when the business wants to change a forecast input.

Why?

Because it means the business storyline is changing and it’s my job to be the one to make sense of it.

Here’s an example of it in action:

• The head of marketing wants to decrease the expected lead volume due to an ongoing decrease in the website conversion rate

• That drop in lead volume results in sales and revenue falling below goal

• And since the [hypothetical] bonus program is tied to revenue achievement, the executive team will be impacted by this change

In a case like this, I see my job as 2-fold:

1. Be a messenger of the facts of what a change in the forecast would do

2. Be relentless about making a big deal of how bad this change will impact the business

It’s equal parts biased and unbiased.

Opportunities like the one above aren’t rare (the business is constantly changing), but we FP&A professionals need to make sure we are leveraging them to drive the business.

And forecast changes often are the perfect opportunity to do this.

Headwinds and tailwinds

Others will call this “risks and opportunities” (or R&O if you’re really fancy).

It’s simply the cataloging of known trends in the business that aren’t yet incorporated into the forecast.

These can be favorable (tailwinds or opportunities)

Or unfavorable (headwinds or risks)

Truthfully, a prudent FP&A professional is looking for headwinds and tailwinds to drive the business as our primary tool.

Why?

Because once a forecast change happens it’s often too late to make any adjustments in the business. And forecast changes will be messaged to the board (not something you typically want if it’s avoidable)

A forecast change should only happen after you have enough evidence of the adverse/positive impact being something that will sustain in the future.

But a risk/opportunity is typically called out when the driver of the trend is new or immature.

A high-functioning FP&A team will catch emerging trends early, alert the business, and the business will resolve it before it ever gets included in the forecast.

In summary:

In case you missed it - there’s a single indicator that tells you that something is broken with your report:

the report is no longer optimized for the original intent

Focus on each report having 1 audience and 1 purpose and you’ll have a powerful reporting suite

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