Three keys to better forecasts
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It’s simple: Plans and forecasts matter Your firm makes consequential decisions every year based on its plans and forecasts: What markets to enter, what people to hire, where to invest... and many others. Getting it right involves analytical inputs from dozens, hundreds, maybe even thousands of people. Yet many firms still get it wrong. Here’s an astounding fact. Every quarter, nearly 25% of public companies miss Wall Street earnings expectations, or have to reduce their earnings guidance. And the consequences are huge. In this presentations, you'll learn: Why companies miss their forecast What you can do about it Next steps you can take
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Three keys to better forecasts
- 1. THREE KEYS TO BETTER FORECASTS Presenters: David Levy, CMO, Trefis Larry Gorkin, Managing Director Corporate Solutions, Trefis
- 2. OUR MISSION IS TO TRANSFORM DATA AND ANALYSIS INTO EXPERIENCES THAT INSPIRE VISION AND ACTION
- 3. David Levy, CMO He began his career as an editor at Reader’s Digest before jumping into the world of digital marketing and direct response. More than twenty-five years later he brings to Trefis a unique mix of editorial experience, agency acumen and B2B marketing savvy. Before joining Trefis in 2015, David spent five years as a marketing consultant to enterprise software companies. Larry Gorkin, Managing Director, Corporate Solutions Throughout his career, Larry has learned what it means to help companies grow and he helps our corporate customers use Trefis to do just that. His line executive experience includes stints at Procter & Gamble, MCI and GE Capital. As a consultant–at McKinsey & Company and Stonebridge Consulting Group–Larry has guided clients such as IBM, MasterCard Worldwide, and Baxter Health Care.
- 4. TODAY’S WEBINAR IS ABOUT HELPING HELPING LEADERS DEVELOP BETTER, MORE ACCURATE BUSINESS PLANS AND FORECASTS
- 5. 1 2 What you can do about it 3 How Trefis can help Why companies miss their forecasts WE’LL COVER THREE THINGS TODAY
- 6. DID YOU KNOW THAT EACH YEAR, AN AVERAGE 25% OF PUBLIC COMPANIES MISS WALL STREET EARNINGS EXPECTATIONS FOR QUARTERLY RESULTS, OR REDUCE PREVIOUSLY GIVEN GUIDANCE
- 7. THE BIG SHORT 25% MISS THE MARK HOUSEHOLD NAMES
- 8. Internal decisions • Capital spending • Compensation • Hiring • Inventory • Production External decisions • Analyst projections • EPS multiples • Stock price • Investments FORECASTS HAVE CONSEQUENCES
- 9. SIMPLY PUT: MISSED FORECASTS DESTROY VALUE
- 10. SO, WHY DO COMPANIES MISS THEIR FORECASTS?
- 11. 1 No Agreed Fact Base Data and analyses overload Key unanswered questions Few objective and statistically valid facts MISSING FOUNDATION Data and analyses overload Companies have TONS of facts and data, probably too much Key unanswered questions Which facts actually impact results? Every business is different. Is your business sensitive to interest rate movements? CPI? Do you know the answers? Few objective and statistically valid facts Everyone has an opinion. Few companies have objectively measured statistics-based answers for which facts actually count, and by how much.
- 12. WITHOUT THESE FOUNDATIONAL FACTS, YOU’RE JUST GUESSING. AND UNLESS THE LEADERSHIP TEAM AGREES ABOUT THE FACTS, IT’S JUST AS BAD AS NOT HAVING THE FACTS AT ALL.
- 13. CONSTRAINED CAPABILITIES 2 Inadequate tools Dense analytic detail Static presentation limits scenario comparison Unanticipated questions slows process and drives bad choices Dense analytic detail Key facts and business drivers are squirrelled away in rows and columns of individual spreadsheets Static presentation limits scenario comparison Executives want to evaluate alternatives but analysts present them with only a few static options Unanticipated questions slows process and drives bad choices Teams can never anticipate the full range of scenarios and questions that executives want to consider.
- 14. WHEN UNANTICIPATED QUESTIONS ARE RAISED, THE CHOICE IS BETWEEN ADJOURNING TO A LATER DATE OR MAKING DECISIONS WITHOUT FULL DATA. IN A WORLD WHERE TIME IS MONEY, AND FACTS ARE ESSENTIAL, NEITHER IS A GOOD OPTION.
- 15. 3 Incomplete process Leading indicators not tracked Business results focus limits options Continuous real time feedback and response loop missing PLANNING LIMITATIONS Leading indicators not tracked Companies track results but not leading performance indicators that can impact the forecast. Business results focus limits options Once business results come in, it’s frequently too late to respond. No continuous feedback loop Executives need the earliest possible headlights when plans aren’t going to be met; more often than not they don’t have a disciplined or consistent process for doing this.
- 16. DRIVING WITHOUT HEADLIGHTS LEADERS NEED INFORMATION AS SOON AS POSSIBLE. OPPORTUNITIES TO CHANGE DIRECTION DIMINISH THROUGHOUT THE YEAR.
- 17. WHY COMPANIES MISS FORECASTS 1 2 Inadequate tools Dense analytic detail Static presentation limits scenario comparison Unanticipated questions slows process and drives bad choices 3 Incomplete process Leading indicators not tracked Business results focus limits options Continuous real time feedback and response loop missing No Agreed Fact Base Data and analyses overload Key unanswered questions Few objective and statistically valid facts
- 18. WHAT CAN WE DO ABOUT IT?
- 19. 1 Create the fact base Identify business driver hypotheses Use regression analysis to determine actual drivers Integrate findings into pro-forma financials BUILD THE FOUNDATION Identify business driver hypotheses Conduct interviews or work sessions with internal stakeholders to identify hypotheses of what the leading business drivers might be. Use regression analysis to determine actual drivers Validate with regression analysis which hypothetical factors actually correlate with business results and what weight each has. Integrate findings into pro-forma financials Once the KPIs pass the sniff test, plug them into your forecast
- 20. GET IN THE LEAD IDENTIFY FACTORS THAT DIRECTLY INFLUENCE FUTURE RESULTS INCLUDING EXTERNAL DATA SUCH AS UNEMPLOYMENT RATES, INTEREST RATES, OR THE PRICE OF OIL. IT ALL DEPENDS ON YOUR BUSINESS.
- 21. EXPLORE THE FUTURE 2 Develop Scenarios Test assumptions and the range of future possibilities Assess risk and reward and alternative options Align key stakeholders on the best path forward Test assumptions and the range of future possibilities Examine more than a handful of “what-if” alternatives and test which ones are more likely Assess risk and reward and alternative options What risks are apparent, and which do you want to defend? What are potential opportunities, and which do you want to protect? Align key stakeholders on the best path forward Share both your conclusions AND your assumptions to align stakeholders on a plan
- 22. SLAY HIPPOS WITH DATA OFTEN THE MOST VOCAL AND “HIGHEST PAID OPINION” IN THE PROCESS WINS. GET THE FACTS AND USE STATISTICAL METHODS TO GET PAST MERE OPINION.
- 23. 3 CREATE A CONTINUOUS LOOP Continuously track and update KPIs Monitor and update KPIs either through automated data feeds or a disciplined work flow Integrate with business data to determine implications Understand the business implications and share those conclusions with the appropriate leaders Refine the underlying model as necessary Meet on a monthly--or at least quarterly--basis to discuss the latest updates and next steps Install “headlights” Continuously track and update key performance indicators Integrate with business data to determine forecast/plan implications Refine the underlying forecast model as necessary
- 24. DRIVING WITHOUT HEADLIGHTS LEADERS NEED INFORMATION AS SOON AS POSSIBLE. OPPORTUNITIES TO CHANGE DIRECTION DIMINISH THROUGHOUT THE YEAR.
- 25. THREE KEYS TO BETTER FORECASTS 3 Install “headlights” Continuously track and update key performance indicators Integrate with business data to determine forecast/plan implications Refine the underlying forecast model as necessary 2 Develop Scenarios Test assumptions and the range of future possibilities Assess risk and reward and alternative options Align key stakeholders on the best path forward 1 Create the fact base Identify business driver hypotheses Use regression analysis to determine actual drivers Integrate findings into pro-forma financials
- 26. TREFIS PULLS THE WHOLE PROCESS TOGETHER
- 27. Transform models We take companies’ full forecasting models—those with the correlated business drivers integrated—and transform them into Trefis Interactive Experience.
- 28. “What-if” scenarios Transform models Teams easily and quickly focus on key drivers and evaluate “what-if” scenarios in real time. Stakeholders test assumptions, assess risk/reward, and align on the best possible plan
- 29. “What-if” scenarios Continuous monitoring and tracking Transform models Trefis automates the process for monitoring and tracking. Each month, the model is updated with the latest business results and KPIs. Leaders can link in directly and see the most current results versus plan.
- 30. “What-if” scenarios Continuous monitoring and tracking Transform models Determine implications and take action Finally, executives quickly create scenarios and assess the risks and opportunities in their plan. And TAKE ACTION at the earliest possible moment.
- 31. TREFIS TRANSFORMS CLICK THE GRAPHIC TO SEE THE “ABC” FORECAST
- 32. RELATED TREFIS CAPABILITIES • We will: • Work with you to identify hypotheses for external and internal business drivers • Conduct regression analysis • Integrate the business drivers into the company’s pro-forma financials and create a model that can be used to create and evaluate alternative scenarios
- 33. As a special offer, Trefis will transform your spreadsheet model into the Trefis Interactive Experience at no charge. Click our logo to send your model TRANSFORM YOUR MODEL
- 34. CONTACT INFORMATION David Levy, Chief Marketing Officer david.levy@trefis.com Larry Gorkin, Managing Director Corporate Solutions larry.gorkin@trefis.com www.trefis.com/info/solutions
- 35. THANK YOU
Editor's Notes
- David: Welcome to the Trefis webinar on better financial planning. Thank you all for coming. I’m David Levy, Chief Marketing Officer for Trefis, and your host for today. During today’s web seminar, attendees will be in listen-only mode. There will be a Q&A session at the end of today’s call. If you have a question during the presentation, you may submit it online by entering it in the Q&A panel. If you are in the full screen view click the “?” icon located on the floating toolbar at the lower right side of your screen to open the Q&A panel. Simply type your question into the dialog box and click the Send button. If you are in the split screen mode, the Q&A panel is already open and is located at the lower right side of your screen. As a reminder, this presentation is being recorded If you are experiencing technical issues, please contact WebEx Technical Support at: 1.866.779.3239.
- Incomplete fact base --companies don’t have an agreed fact base for what will drive business results in the future. That’s not to say that companies aren’t working with lots of facts or data. In fact, they probably have too much. But, the more specific requirement is to have an objective and agreed measure of which internal and external factors will drive results. And by how much. For example, some businesses may be driven by oil prices while for others, housing starts may be critical. Every business will be different. Undoubtedly, most companies have intelligent and reasonable ideas for what these factors might be. But, what most of them lack is an objectively measured statistical based answer for which ones actually count, and by how much. Without these foundational facts, you’re just guessing. And unless there is concurrence across the leadership team about the facts, it’s just as bad as not having the facts at all. David: OK. The first problem is that companies often don’t even know which facts to agree on. That’s interesting. In a world of big data it seems that we may know even less. What’s the next issue?
- Build a Fact-Base— As discussed, we need to identify and quantify the specific external and internal factors that drive each unit’s business results. We recommend a three step process here: Conduct interviews or work sessions with internal stakeholders to identify hypotheses of what the business drivers might be. Remember, we’re looking for leading indicators; specific factors that directly influence, or are closely correlated with changes in future results. Examples of external factors might be unemployment rates, interest rates, or manufacturing output. It all depends on your business. b. Use regression analysis to determine which hypothetical factors actually correlate with business results and what impact or weight each has. c. Vet the results of your regression modeling with key stakeholders to be sure they pass the “sniff test”. You need to be sure the output “make sense” in the eyes of folks who know the business best. Once you’re comfortable they are right, integrate those factors into the pro-forma financial models for your business. DAVID: Let me make sure I understand you. You’re describing something that sounds like it comes from my career as a journalist. It begins with INVESTIGATION, kind of like reporting, followed by additional analysis to make sure the facts are ACCURATE and RELEVANT. Is that fair? LARRY: Comments….
- Respond through the we