Predictive analytics can help CFOs and other business leaders examine a full range of market and operational data that can help them better forecast business outcomes (e.g., revenue, profits, operational costs).
This is where business leaders can ask and answer questions such as: “Where are we headed?” and “What’s the best course of action?”
Still, analytics can be even further maximized when an organization takes a highly disciplined approach to forecasting, draws on secondary forecast models, and applies other best practices.
We offer four tips to help business leaders make the most of analytics to optimize business forecasting:
1. Identify the business needs. Forecasting can be applied across different parts of a business (e.g., changes in revenue for a particular geography or product category, shifts in operational costs, labor costs for a specific division or organizational function). Business leaders can use predictive analytics to forecast and anticipate trends and conduct statistical modeling that allows them to optimize business outcomes and improve productivity.
2. Set realistic targets. Forecasting is a prediction of what may occur in the future. Although the use of predictive analytics can achieve high degrees of accuracy, there are numerous variables that can ultimately change business results (e.g., shifts in customer/product demand, changes in market sentiment, weather, changes in fuel/distribution costs, etc.).
The use of predictive analytics can help organizational leaders forecast with greater accuracy (e.g., “If we change the price of this product by eight cents, how will this impact conversion rates and profitability?”).
3. Conduct post mortems. It’s more fun to predict the future than to look back at how well (or poorly) the predictions played out. Still, evaluating forecasts after the fact can help decision-makers identify mistakes that occurred or perhaps variables that were overlooked that can be used to improve the accuracy of future forecasts.
4. Foster an environment of continuous learning. The use of predictive analytics and data discovery tools can help CFOs and other business leaders identify shifts in business and operational results that can offer valuable lessons regarding future cycles (e.g., sales of a certain product category tend to rise and ebb during the first and third fiscal quarters). Be sure to earmark such trends for those instances where they can be applied to future forecasts.