Unlocking Data Is Key to Financial Forecasting Success

Automation and cloud technology have handed many CFOs a secret weapon. This tool has enabled them to shift their focus from past performance and toward future trends. It has allowed CFOs and budget managers to embrace real-time data and create in-depth predictive models.This 'secret weapon' I'm talking about? Forecasting.The budget has historically been CFOs' and budget managers' focus. However, new technology means an incredible amount of data is ripe for the picking and has enabled many organizations to embrace advanced financial forecasting methods with great success.Now the question remains: is this data being used effectively to create better forecasts?In this post I want to cover why I think understanding this data is so crucial to CFOs and budget managers. And why more organizations need to utilize data to improve forecasts.

CFOs Embrace Data

To many CFOs and budget managers, data is a big deal—especially to those who look to adopt automation, cloud-based systems and other 'smart' budgeting tools for financial intelligence. All can help provide a competitive edge.A recent study from Ernst & Young found that CFOs have become invested in ways to analyze data for better forecasting.Of those surveyed, 23% cited "Improve big data and analytics capabilities to transform forecasting, risk management and understanding of value drivers" as their greatest priority. Additionally, 56% responded that "Sophisticated planning and forecasting" was critical to meeting future organizational demands.These CFOs are looking at how they can tap into the data that's at their fingertips and combine it with higher-level analysis to transform their forecasting abilities.

Using Data to 'See' the Future

It's clear there are significant benefits associated with having good forecasts. But these benefits depend on how well your organization collects and handles data.The amount of data available today, to the biggest Fortune 500 company to the local mom-and-pop shop, provides potential like never before. However, too many organizations leave much of their data untouched, in part because they may not have the capabilities or understanding of how to harness and use data effectively.Unfortunately, leaving the potential of data untapped can place your business at risk.One of the key features of good financial forecasting is the ability to help predict future outcomes, allowing for a much better system of risk management.Today's business environment is fast paced and unpredictable. Any number of external factors can shape an industry, or as we saw in 2008, the economy as a whole. These factors can trickle down to sales, human resources, and even non-financial indicators such as trust or perception.It's when things get shaky that excellent forecasting can have a lasting positive impact. Rather than scrambling when the market takes a turn, a business that's been using advanced forecasting to run 'what if' and other types of scenarios has defenses against risk—they're able to extract insights from data and form better, more forward-looking decisions.Advanced data can enhance forecasting. Systems that pull in real-time data and reforecast automatically include things like market changes or missed assumptions. This helps focus the finance team on analysis instead of data collection.While it's not possible to completely prevent economic downturns, data can help organizations better prepare. And those businesses that embrace and analyze data to improve their forecasts see results. A stronger forecasting ability will pay dividends over the long term.‍