FINANCIAL FORECASTING

Financial Forecasting
A financial forecast identifies trends in external and internal historical data, and projects those trends in order to provide decision-makers with information about what the financial status of the company is likely to be at some point in the future.

Integrated Financial Forecasting

Helps in using financial statements to improve business outcomes and optimize performance. Processes like sales and capital planning collect data at a micro level Integrated financial statements consolidate and analyze micro planning processes at a macro level As forecasts change, integrated financial statements can be instantly updated to see the effect on key financial objectives such as DSO and cash flow per share.

Sales Forecasting scenario

Expctd revenue shortfall in Q2. What if scenario model

what if analysis of a rebate program to bolster revenue in Q2. a 10% rebate projects a 25% uplift in stage four of companys sales cycle

Comparison of budgeting/ forecasting tools applications

Challenges

CRITTALL 2nd largest supplier of steel windows in the US Adaptive Insights Difficult to map labour to product Manual effort to update spreadsheets & Assumptions/allocations

Parsons Electric Established leader in electrical services industry Host Analytics Annual budgeting in Excel took nearly half the year Inflexible tools

Malt-O-Meal 4th largest cereal company in North America IBM Cognos TM1 Manual consolidation Shortening forecasting cycles Cost reductions

Strategy/Approach

Automates allocations and updates budget based on assumptions One unified platform Improved accuracy of budget Reduced time

Separate direct costs from overhead Increase visibility to drill down to transaction level No more routine requests for information Rolling forecasts enable fact-based decision-making

Matrix to determine stacking transportation cost New capital plan model Gives more time to analyse Rolling forecast Transition from reactive to proactive process

Result

Demand Planning and Forecasting in Manufacturing Sector(Tata Steel)

Commonly used forecasting methods of demand estimation may be broadly categorised as:
i. Judgemental Methods : Predictions on the basis of intuition and opinions and is highly subjective in nature ->simple survey ->Delphi method->analogy method ii. Econometric Methods : ->Time series forecasting ->causal/structural forecasting iii. Other Methods : -> Artificial neural networks -> Probabilistic forecasting -> Reference class forecasting -> SVM (support vector machines)

Demand Planning and Forecasting in Manufacturing Sector(Tata Steel)

Forecast management: Uses JDA Software for its demand forecasting of steel to estimate demand for steel in other sectors like construction, machinery , automobiles , railway power, etc. JDA software offers an extensive array of integrated and planning capabilities for companies to manage the entire supply chain Characteristics :
Improved competitive advantage Reduced total cost of ownership Rapid solution implementation Interoperability with other IT assets

Advantages of Financial Forecasting

Future Decision Making Financial Planning Cash Flow Benchmark Potential Risk PE or Borrowing

Bank Loan
Potential Investors

Limitations of Financial Forecasting

Unknown Competitive Threats
Unforeseen Events

Unpredictable Consumer Behavior

Accuracy & Version Control

Flexibility

Frequency & Timeliness of Information

Challenges

Inadequacy of Data

Recommendations
Tools not user friendly Most companies prefer excel based modeling and planning But the future lies in the optimized usage of these tools High performance risk frameworks should be used to analyze and handle market shocks and take advantage at the same time Eg: Arbitrage opportunities in different markets

References
http://businessfinancemag.com/ http://www.smallbusiness.wa.gov.au/ http://www.accenture.com/SiteCollectionDocuments/PDF/112192Tactical V7.pdf Host Analytics Customer Case Study Parsons Electric: http://cdn.hostanalytics.com/sites/default/files/casestudies/Host%20Analytics%20Case%20Study%20Parsons%20Electric.pdf Adaptive Insights Customer Success Story Crittall: http://www.adaptiveinsights.com/uploads/docs/AI_Casestudy_Crittall_Wi ndows.pdf MaltOMeal Case Study: http://ecapitaladvisors.com/customers/malt-o-meal-case-study IBM Case Study: http://www.ibm.com/analytics/in/en/case-studies/index.html