Business Core · Finance · Module
Forecasting
A current estimate of where the numbers are heading, updated as the world changes. Distinct from the budget, which is a commitment.
The idea
How it works
Confusing the forecast with the budget corrupts both. A forecast that must match the budget stops being an estimate, and the organisation loses the only instrument that would have given it warning.
Forecast accuracy is measurable and almost never measured. Recording what was predicted and comparing it to what happened is the single change that most improves forecasting, and it requires no new method.
Working with it
In practice
- 01
Keep the forecast separate from the budget
One is an estimate, the other a commitment. Merging them destroys the estimate.
- 02
Roll the horizon forward
Twelve months ahead, updated quarterly, rather than a horizon that shortens to nothing by December.
- 03
Record the accuracy
What you predicted against what happened. Consistent bias is correctable once visible.
- 04
Forecast a range where uncertainty is real
A single number implies a confidence that rarely exists.
One level in
The components of forecasting
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
A forecast required to match the budget stops being a forecast. Keep them separate on purpose.
The other modules in finance
Budgeting
Allocating money to intentions for a period ahead. A budget is a set of decisions expressed in numbers, not an administrative exercise.
LearnCash flow
Money actually moving in and out, by date. Profitable organisations fail here, which is why it is tracked separately from profit.
LearnFinancial reporting
Turning transactions into a statement of what happened, for people who have to decide something on the basis of it.
Learn