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Preparing the finance function for an analytical future

13th September 2017

Preparing the finance function for an analytical future

On any given day, the most commonly found search term on Google is the “Weather”.  Roughly 45 million times a month people around the world want to know whether they need to leave home in the morning clutching an umbrella or a tube of sun cream. It seems that we have an unquenchable thirst for certainty.  But fascinatingly, households appear to be abandoning traditional gut feel and the household barometer in favour of meteorological websites that provide endless streams of data about weather patterns, forecasts and probability.

In fact, weather forecasting puts business forecasting and planning to shame. Modern meteorology uses vast and complex computer models to simulate weather systems, it takes data from all sorts of sensory devices out in the field and it uses advanced statistical techniques to give a range of possible outcomes and probabilities.

Businesses face no lesser challenge when it comes to mastering market volatility, uncertainty and change, yet the skills applied are decades old, the tools are antiquated and the best outcome that most finance functions can muster is a “best”, “median” and “worst” case forecast with no sense of the probability of each scenario occurring.

No wonder that FSN’s “Future of Planning, Budgeting and Forecasting Research” finds that 50% of finance organizations are unable to forecast revenue beyond the 6-month time-horizon and 60% are unable to forecast revenue to within plus or minus 5%. 

So, what can the modern finance function learn from weather forecasting?  How can finance functions introduce more dependability into forecasts and, in the process, transform insight into foresight?

 

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