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All forecasts are wrong - so what?

forecasting fp&a Mar 21, 2019

By Andy Burrows

 “Does anyone in FP&A ever review the accuracy of their predictive financial models from time to time?” That’s the question I posed on LinkedIn a while back, and it generated a good discussion. And it turns out that FP&A professionals generally care quite a lot about the accuracy of their forecasts.

One of the businesses I worked in was strongly linked to the travel industry. So, our business tended to fluctuate seasonally. But we never seemed to be able to get our P&L and volume forecasts right. It was low margin, high volume business. So, volumes made a big difference. It was so frustrating trying to predict things like the effect of Easter being early or late, public holidays, school holidays, and other factors like the economy, the weather, and exchange rates.

When we did variance analysis, the Managing Director would get frustrated with us, because sometimes the explanation for a variance would be that we’d neglected to...

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Driver Based Planning and Forecasting in the Context of FP&A

This article is written by financial modelling specialist, Lance Rubin. You can find more of Lance's work at https://www.modelcitizn.com/

Background

When I first came across the term driver based planning and forecasting I was confused.

As an ex-investment banker having joined a Finance team the concept of drivers when talking about a forecast or plan was simply assumptions.

Why was it not called just that? Assumptions! Investment bankers have been building models with assumptions ever since the first model was built and a corporate transaction was negotiated.

So what’s all the excitement about driver based planning. It’s simply a financial model with assumptions to drive decisions..no?

Driver Based vs Assumption Based

Why give assumptions a different name i.e. a driver, why not just call it assumption based planning?

Ultimately a plan or a forecast is a collection of assumptions both in the numbers that are input into the model but also assumptions around...

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