Forecasting as a Process, Not a Periodic Event

How can the hospitality industry plan for the growth of AirBnB?  Or the trucking industry – a very large employer - for the evolution of the driverless vehicle?  Or taxi, limousine, and delivery services reacting to the growth of Uber?

As organizations demand ever more rapid and wide-ranging responses to new situations, business planning needs to keep up. Forecasting has evolved greatly as enterprise leaders suddenly find themselves with an abundance of data from multiple different sources. This leads to a change from traditional forecasting — taking just a few data points from previous years and synthesizing a plan for a certain period of time — to something Andrea Marrella, PhD at Sapienza, Università di Roma, has dubbed "continuous planning."

The Value is in the Planning, not the Plan

Marrella describes the strategy of "continuous planning" as designed to "modify only those parts of the process that need to be changed/adapted and keeping other parts stable." Or, as Tim Berry, founder of Palo Alto Software, puts it: the value is "never in the original plan, it is in the implementation." 

While transitioning from annual to quarterly forecasting does help, holding fast to fiscal year projections does not provide the required degree of nimbleness that a modern enterprise needs to stay competitive. Exit periodic forecasting; enter, continuous planning.

"Planning is a continuous cycle, which takes a plan, puts it into action, compares the outcome with the projected results, and uses this new data to adjust the plan and set goals accordingly," says Berry. "It is the planning that creates value and allows a business to learn it's strengths, weaknesses, opportunities, and threats as the time goes by – not the original plan."

"What are the fundamental goals and guiding precepts of your business?"

Vision and Strategy Meets Attitude and Action

Much of the value of continuous planning comes from a better overall sense of, and ability to adjust, the organization's strategy without getting lost in the data. Business plans and forecasts must reflect the fundamental yet evolving goals and guiding precepts of the business.  They must therefore be based on the measures of success, the drivers, that are most valuable in day-to-day operations.

As we have previously discussed, FP&A professionals typically report higher rates of satisfaction with budgets that add value for a longer period of time, are more comprehensively detailed, and (most importantly) have short cycle times to update. This shorter cycle time reduces workload and allows for essentially on demand completion — all working towards shortening the gap between forecast and real-time. 

Much of this has to do with attitude: Companies successfully implementing process-based forecasting typically use phrases such as "trust", "empowerment", "cost-consciousness" and "flexibility" when discussing their experience. This shows an overall openness to the idea of ongoing adaptability and a fundamental (and essential) culture shift.

Plans Still Useful as One Tool in the Toolbox 

In spite of some FP&A professionals declaring the "end of budgeting," the fact that industry leaders still report high degrees of satisfaction with detailed budgets leads us to believe that the days of forecasting are far from over. Rather, these forecasts become but one tool in a larger toolbox. By limiting the resources spent on developing fixed forecasts that must be met as gospel, forecasting takes its rightful place as an on-going activity and part of regular operations.