Every forecast is driven by a simple paradigm. A forecaster adjusts key assumptions that drive final results. In the most obvious business case, this might be sales or profitability but the paradigm holds true for other forecasting processes, where the final results can impact inventory levels or customer satisfaction…
As these assumptions are the driving elements of results, it is surprising that when one assesses an organizations current processes, these same assumptions are often discarded when decision makers are creating insights. Why would this happen? The answer is that the assumptions are sitting in a variety of spreadsheets and are not consolidated into enterprise-class systems.
These assumptions or drivers provide one of the most critical elements of Forecasting ROI. That is, to improve diagnostic insights in the business. All businesses can determine when results are beginning to vary from committed plans. These can either involve downside or upside performance. The automatic next question is, 'what is causing this variance or, what diagnostic insights can be concluded?'
Providing business critical diagnostics is the last stage of Forecasting Process Improvement and brings the highest value to the organization.
In FPI, the goal is to manage all these key assumptions and compare them to actual results on an ongoing basis. This results in a variance. The difference between the Actual versus Forecasted results, enables organizations to see the impact to results and in turn provides incredible insights to decision makers. This diagnostic analysis also helps determine whether the variance in results should create some kind of immediate action.
Many of the other topics discussed so far in FPI are supported in current processes just at lower levels of impact and efficiency. Our experience with Diagnostics is a little different as many organizations are missing this deliverable almost entirely. The reason is that achieving this is a combination of many of the other processes (collaboration, productivity etc…).
Gaining an improved competency around Forecasting Diagnostics can drive the most significant impact on FPI ROI.
i2e by Scarsin was designed to technologically enable improved diagnostics. Experience reveals that to achieve high levels of FPI in terms of diagnostics, also requires redesign in the actually modeling that the company executes. So consulting best practices here is essential to improving diagnostic capability.