Harvard Business Review: Effective Financial Forecasting Rules 4-6

Harvard Business Review Adaptive Planning Financial Forecasting Best Practices WhitepaperLast week, we gave you an abbreviated version of the first three of the Harvard Business Review’s “Six Rules for Effective Forecasting.” Today, we bring you the second half abridged version. You can download the detailed Harvard Business Review white paper here.

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4. Hold Strong Opinions Weakly

Harvard Business Review Adaptive Planning Effective Financial Forecasting Rules WhitepaperOver-relying on a single piece of seemingly strong information is one of the most detrimental and common mistakes that people make when making a financial forecast. We do this because we identify strong information as anything that reinforces our pre-conceived conclusions. Once we develop a hypothesis, we don’t like to prove ourselves wrong.

Good forecasting is done in reverse. It’s a process of strong opinions that are weakly held. So if you’re going to forecast, forecast often. Then, be the first to disprove your hypothesis.

5. Look Back Twice As Far As You Look Forward

 Harvard Business Review Adaptive Planning Effective Financial Forecasting Rules WhitepaperIf used properly, historical data-sets can be very powerful forecasting tools. History can help to connect the dots between several present indicators, but only if one looks far back enough to see the turns and straightaways within historical trends (review rule #2 for context on turns and straightaways).

Recent history is rarely a reliable indicator of the future. It offers no baseline to compare against the ebb and flow of current trends. The best forecasters don’t just peek into the review mirror. They turn completely around and take in a full view of their previous experiences.

 6. Know When Not to Make a Forecast

Harvard Business Review Adaptive Planning Effective Financial Forecasting Rules WhitepaperThe cone of uncertainty constantly expands and contracts. As the future becomes the present, certain possibilities come to pass.  Others are closed off. There are thus moments of unprecedented uncertainty when the wise forecaster will refrain from forecasting at all.

That’s not a license to completely abandon forecasts. Think of it as a hiatus. Things will soon settle down. Then it will be possible to make a good forecast once again.

Check out part one of Adaptive Insights’ HBR white paper review here.

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