Leadership, teamwork and buy-in from top brass are vital for successful financial forecasting, say Rob Bayliss and Mark Robson
This article was first published in the July 2018 UK edition of Accounting and Business magazine.
Financial forecasts and the models that are used to create them underpin many of the decisions you make in business. In June’s edition (page 20), we covered some of the things to watch out for, helping identify whether your forecasts should keep you awake at night. If you apply good modelling disciplines, you end up trusting your models and gaining real value from using them.
Getting the spreadsheet right is important, but there are other factors to consider when your business engages in forecasting. Relying on the abilities of one person, however capable and confident, to pilot a situation on their own and get every call right is rash. People make mistakes. People need to collaborate. Forecasting too ought to be a collaborative exercise.
We can break forecasting into its component parts, making sure another brain and a different perspective are applied to each stage of the process:
- Model design. Here we think about what information we want out, what’s going to go in and all the little pieces in between. This is the architect’s plan (and, critically, this is a project that does have a plan).
- Building. Here we layer the (usually Excel) bricks into the forecast, in exactly the same way and in the same tidy lines as everyone looking at the project has seen the bricks laid many times before.
- Reviewing the build. This is the equivalent of the building-site foreman, building inspector, architect and client all making periodic on-site inspections, checking that the build has progressed in line with the original plan and within industry practices.
- Snag list. We view the spreadsheet as a piece of software, running diagnostic tests, looking for unusual spreadsheet artefacts that require closer examination and explanation, sharing the file with the group and putting it into beta use. Then we check when numbers don’t perform as expected.
Forecasting falls down when it’s just one person who becomes responsible for all of the above at the same time. The thing that should worry us is the junior analyst modelling for us in a fury, rushing towards the imminent deadline, with smoke and sparks streaming from the keyboard.
Support from the top
In addition to seeing forecasting as a collaborative effort to iron out the wrinkles, we need to give it the right level of emphasis if it is to be successful.
Portraying company strategy via financial projections is not something to be thrown to the most recently qualified accountant in the company sitting in the smallest, darkest office and co-opted to get on with it just because they seem handy with Excel.
The process needs leadership and most likely starts with the senior team developing and positioning themselves to be able to articulate strategy. As in other areas of life, it is the voices and controls from the top that establish best-practice systems. Experience combines with a strategy for risk-management that teases out alternative views, promotes debate, layers in checks and employs safeguards from other situations where results matter. From there on it is the modeller’s or accountant’s job to paint a beautiful (and robust) picture in numbers of how that strategy will evolve.
Rob Bayliss and Mark Robson are part of a team at Grant Thornton UK that pulls together beautiful forecasts for clients who have important decisions to make
"Portraying company strategy via financial projections is not something to throw at a junior accountant just because they’re handy with Excel"