Forecasting: Spreadsheets Still Rule

An efficient, reliable forecasting capability is no longer a nice-to-have; it's an indispensable strategic tool. Accurate forecasting gives decision-makers the information they need to shape corporate strategy and sends the right signal to stakeholders and analysts.

So how good are companies at predicting their financial outcomes? Not great, according to data from The Hackett Group released in February and reported here. Two out of three organizations studied by the global strategic advisory firm were unable to accurately forecast earnings for the next quarter. Hackett defines an accurate forecast as one that falls within 5 percent of actual results.

Participants in an April Business Finance online poll did quite a bit better than might be expected from Hackett's research. About 44 percent of the group reported that their organization's last quarterly forecast fell within the +/- 5 percent band, and 5.6 percent came within +/- 1 percent.

That's good news, but other results from the survey are less encouraging. A key best practice for improving forecasting consists of eliminating "spreadsheet farms" by taking advantage of the automation efficiencies provided by the latest technologies, as Glen Hafler noted in the February edition of Business Finance. But few companies seem to be heading in that direction. Sixty percent of respondents reported that their organization relies on spreadsheets as the primary technology for planning and forecasting. Only one-fifth rely primarily on a packaged solution, and 4 percent use an ERP system.

These results jibe with research published by PricewaterhouseCoopers last year (requires free registration), which found that only about one-quarter of companies use ERP and best-of-breed systems, without spreadsheets, for financial planning. "These low percentages indicate a high improvement area for companies hoping to better use technology to help automate financial planning and reporting models and processes," the study notes. "They also show that many ERP and best-of-breed financial planning implementations over the past few years did not completely reduce reliance on spreadsheets as a key component in the process."

Here are the full results of the Business Finance poll:

1. How accurate was your last quarterly forecast?

2. What is your primary technology for planning and forecasting?