How to Forecast During Harsh Economic Times?
Unpredictable crises, such as economic depressions, natural calamities, and black swan occurrences (such as the current COVID-19 epidemic), have enormous consequences. Crises may immobilize both organizations and economies. These times are everything from typical for the vast majority of enterprises. Safety risks exist everywhere. People’s mobility is constrained, company operations slow down, and cash flow contracts.
During these unpredictable times, consumers’ needs change drastically, necessitating new methods of operation from firms. For example:
• Cost reduction and preparing systems and tools to handle large numbers of workers beginning remote work as a result of movement control during pandemics and similar events become top priorities.
• Financial Forecasting, scenario prediction, conclusion drawing, and reporting become tough, variable, and unexpected.
• Many businesses must modify their whole Business Models.
• Cost-cutting efforts are routine.
· There are enormous layoffs and possibly company closures.
· Some businesses are required to provide online product buying and fulfillment services.
• Others must improve their virtual Customer Experience delivery.
· In such unpredictable conditions, online collaboration solutions like as Teams, Zoom, Google Meet, and Microsoft Office 365 become a standard.
During such uncertain times, most firms become cash-strapped, and many must turn to severe Cost Cutting tactics. These conditions need the following from enterprises in order to emerge from the crisis stronger than before:
• Coherent Planning via Scenario Analysis.
• Forecasting cash flow projections.
• Developing a comprehensive, long-term perspective of the company.
• Making intelligent investments.
• Building distinctive skills.
Typically, financial planners provide projections based on historical patterns, prior performance, and market movements. In times of uncertainty, management should prioritize Cost Management and apply efficient Forecasting techniques.
A comprehensive Forecasting Strategy that can effectively manage stakeholders’ expectations requires three essential steps:
- Select a flexible forecasting tool suite with the right level of scope and detail.
- Share, corroborate, and evaluate your assumptions.
- Outline the impact of decisions
The methodology includes three questions for each step:
• Does our set of forecasting tools address the issues posed?
• Do our baseline assumptions account for new realities and opportunities?
• What happens when we pull the levers available to us?
Let’s get further into the first two phases of this Forecasting methodology.
Step 1. Select a flexible forecasting tool suite with the right level of scope and detail.
Using a flexible forecasting tool to provide predictions that account for both favorable (upside) and unfavorable (downside) possibilities is the opening phase of the methodology.
The forecasting suite should be able to provide functionalities for:
• Estimating the effect of fixed and variable expenses, as well as any impending sales and operational planning challenges resulting from the uncertain position.
• Visualizing budgetary possibilities, such as discretionary, necessary, and contractual spending.
• Communicating a logical narrative at the needed frequency, such as weekly or monthly financial forecasts.
Step 2. Share, corroborate, and evaluate your assumptions.
The next phase is constructing plausible hypotheses. Planners must establish, discuss, and evaluate dynamic and current forecasting assumptions and drivers.
• Learn from the effects of the crisis on similar firms throughout the globe, as well as their responses to it.
• Reconcile the assumptions of the base case with the most recent financial statements, allocations, and spending reports.
Interested in learning more about the steps of the approach to Financial Forecasting? You can download an editable PowerPoint presentation on Forecasting Uncertainty here on the Flevy documents marketplace.
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