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Four Conditions for High Value Cash Forecasting

Martin Gillespie
Four conditions for High Value Cash Forecasting

Cash forecasting remains a challenge for most large companies, particularly those with complex operations covering multiple locations with cash flows in numerous currencies.

Treasurers and other finance executives strive to use the forecasts they generate to support high value, mission critical activities across their organisations.

Forecasts that are used for high value activity will need to be a supported by a high-quality data collection and reporting process. High value cash forecasting is used to support high value activity such as liquidity planning, foreign exchange hedging and investor reporting.

Types of cash forecasting process

Cash Forecasting Increase Value Over the years we have found that the forecasting processes in large companies typically fall into one of three categories:

1) Administration

Forecasting processes in this category tend to involve a lot of manual work such as spreadsheet consolidation and reporting. The data and reporting output is typically high level and prone to error.

2) Reporting

In this category, the focus of a forecasting process is to producing an output that is distributed outside of the head office treasury team and as such the focus is on reconciling with other reports generated within the organisation. Consolidation tools or other software solutions may be used to assist with parts of the process but the majority of time is still invested in manual tasks.

3) Decision Making

A focus on analysis characterises the most valuable forecasting processes we have worked on. Time is still invested in the overall process but the majority of this time is spent on data analysis and interrogation with the ultimate goal of gaining a crystal-clear understanding of future cash flows and requirements.

Four conditions necessary for high value cash forecasting

Moving from the administration category to the analysis category is the goal for most companies. The key question is, how is it done? High value analysis focused forecasting is a function of an environment that assists and supports the people providing information to the process. Therefore, the conditions created are central to the overall quality of the forecasts and the value the process ultimately provides. We have identified four key conditions necessary for high value cash forecasting. Cash Forecasting Success Loop 1. Accurate and reliable information input

Ultimately the value provided by any reporting process will be determined by the quality of data it produces which is dependent to a large extent by the quality of data input by people or gathered from other systems. A high value forecasting process produces a high-quality output by ensuring that the input is also of the highest quality.

2. Full meaningful engagement from participants

Accurate and reliable information input is to a large extent dependent on each business unit or subsidiary engaging in a meaningful way with the process. Gaining initial buy-in and ensuring ongoing engagement with a forecasting process can helped by:

  • Gaining visible executive sponsorship
  • Simplifying the process and the data input as much as possible
  • Highlighting the importance of forecasting to the organisation (the business case)

3. Appropriate tools, process and support

Forecasting can be a challenging task, even for seasoned practitioners. Providing support to the people contributing to the forecasting process while ensuring they have the tools necessary to contribute in the best way they can, will be critical to the ongoing success of the process.

4. Analysis, performance reviews and feedback

An emphasis on analysis is the key characteristic of a high value forecasting process. The analysis not only produces key insights that helps guide day to day to day decision making but is also used to create a “feedback loop” that continuously drives improvements in data quality. This feedback loop is the missing link in most forecasting processes.

This focus on support, efficiency and analysis lies at the heart of sustainable, high value forecasting in large organisations. You can download the CashAnalytics whitepaper on high value cash forecasting here.