Forecasting: what for?

Escrito el 12 marzo 2009 por Francisco López Lubián en Corporate

According to a recent article published in The Economist, a growing number of companies have decided not to give annual earnings estimates for 2009. The article cites companies like Unilever, the Anglo-Dutch consumer-goods firm, Costco, a big American retailer, and Union Pacific, one of the America´s big railroads.

We all know that forecasting is difficult… especially the future.  But, given the present circumstances, is it possible to make any forecast? Is it needed?

Some people say that now is not possible to make any reasonable forecast for any business. Well, I would say that this depends on what we understand by «to make a forecast».  If to make a forecast consists in anticipating what´s going to happen in the future, I agree with this pessimistic opinion on forecasting. Nobody can anticipate the future now. And, I would say, never.

I believe that the objective of a forecast is not to use the crystal ball, envision the future and see what happens. On the contrary, the objective of a forecast is to provide information about what you are going to do to build up this future, and to deal with the present situation. In other words, what is your plan? Who is going to implement it? When? Using what means?

But to release this information can be dangerous, critics may say. It certainly can. But it can be more dangerous not to issue any information on this matter, especially in moments of global downturn like the present ones.

At the end, the point is what kind of information we want to deliver about our plans for the future, how we want to provide that information. For example, are rolling forecast better than scenario planning? Do we have to make simulations and only give probabilistic information? Or should we keep simple and be in touch more frequently with the market?

The answer is neither white, nor black. In any case, communication policy in any company needs to be consistent with the rest of operational and financial policies. The image of any company is based on fulfillments.


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