Proper and accurate planning and forecasting are critical to every business, from a small mom-and-pop shop to a Fortune 100 company. It’s not only essential to plan for strategic investments; it can be as critical and straightforward as making sure there’s enough gross margin coming in to keep the lights on. Whether it’s working it out on the back of a napkin, employing a sophisticated business intelligence platform or relying on plain gut feelings, we all have our tactics to ensure that cash keeps coming in.

The Forecasting Trap

In big companies, forecasting can become a trap rooted in bad assumptions that sit on top of years and years of decisions and results that are now clearly outdated and no longer the market standard. Do not fall into this trap; do not tolerate lazy forecasting. You need to demand forecasting that is much more in-depth and intelligent and use it to squeeze profit out of your business by properly challenging the budget owners within your organization. There is a common myopia that comes with traditional forecasting. The view of the horizon for most people rarely extends beyond the fiscal year, with business plans still often based on year-over-year performance. In many back-office functions, the common practice is to use the past year’s performance to set the next year’s target, which then results in forecasting (and spending) to hit these targets so as not to lose the money as the baseline for next year’s plan. And the cycle continues. As Albert Einstein, supposedly said, “Insanity is doing the same thing over and over again and expecting different results.”

How Can You Drive Change?

It’s time to get rid of outdated, myopic practices. Stop holding on to past forecasting processes and mechanisms instead of flexibly adapting to what the data is telling you. Continuously looking into the rearview mirror, rooting forecasts in prior years’ results, and applying “savings tasks” on baselines that have remained unchallenged in recent years is my definition of insanity. Forecasting must be more about influencing future outcomes than predicting it. I believe it should be iterative and agile. It shouldn’t be solely based on what was designed six, nine or 12 months ago — it needs to be modeled on the most current market conditions and changes in the competitive landscape and leverage the most recent key performance indicators.

Furthermore, the current baseline should be reviewed across the board, especially in business areas that experience rapid technological and process advancements. There are challenges to bottom-up forecasting, with bias being an underlying issue. This bias comes from the budget owners, who are convinced that their function is efficient and properly organized. They are often so blinded by what they have built and what they manage that they usually can’t see the opportunity within their organization. These business leaders and even the executives fall into the trap of saying, “This function is X% of revenue, which in our space is good,” but that shouldn’t be the measure of good, especially if you are comparing yourself to firms facing the same problems you are. The ultimate measure should be running the organization as efficiently as possible with the latest technologies, tools and processes available in today’s ever-changing market.

So How Do You Get There?

You will want to adopt an independent viewpoint that can help challenge the underlying assumptions — the viewpoint of someone who is agnostic with no skin in the game. This outsider perspective will help you look at your organization through a new lens and help you honestly evaluate your current state by asking the following questions:

  1. Can you reduce a specific function by 20% by applying automation, even if you have never seen or done it?
  2. Do you have inefficient processes?
  3. Have you performed a time analysis of your workforce to determine where back-office utilization opportunities exist?
  4. Is the run rate you are seeing for a specific software program bloated because no one has ever audited the licenses you are paying for?
  5. Are your vendors now significantly overpriced because the market has shifted?
  6. Are you sitting on a ticking time bomb due to technical debt, and will all your servers need to be replaced at around the same time?


An honest review of forecasting within your organization will help root out the bloat and inefficiencies and create a more nimble, cost-effective organization. Plenty of consulting or technology firms can play this role. If you’re looking to change from within, you can invest in upskilling existing talent or hire fresh blood who can apply an outsider’s perspective when evaluating your organization. Or you can challenge your budget owners to assess their functions critically and do proper unbiased, bottom-up forecasts. However, if you choose this last path, be aware that it takes an open mind, a willingness to embrace change, and an eagerness to push boundaries and challenge the status quo to be successful and for your organization to reap the maximum benefits of proper forecasting and planning practices.

This article was originally published on Forbes.com on August 27, 2019. Rich Carroll is a member of the Forbes Finance Council.


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