Datarails’ Post

7 Forecasting Techniques FP&A Leaders Need To Know 1️⃣ Percentage Adjustments The simplest method. You multiply prior years’ figures by how much you expect them to grow or decline at a high level. Use case: Only for expenses with low strategic importance. Example: office supplies 2️⃣ Time Series Analysis You review the actuals in detail to identify one-offs and changes in trends. Then, you apply what you have learned to future months. Use case: When you can isolate a single variable and can break out one-time impacts. Example: SaaS unit sales 3️⃣ Zero Based Budgeting (ZBB) You evaluate each expense line item (or related groups) and determine ROI. Use case: When you suspect there is a significant opportunity for eliminating low-ROI expenditures and it's feasible to identify them. Example: Marketing expenses 4️⃣ Driver-based forecasting Each strategic business driver is mathematically tied to associated sales. Use case: This method is highly effective and a prerequisite for Scenario Planning. I recommend every FP&A team give it a try. Example: Revenue forecast 5️⃣ Statistical Modeling You use approaches like exponential smoothing, regression analysis, bayesian methods, and other techniques to make projections based on actuals. Use case: When historical data can reliably predict future outcomes and data quality is high. It can supplement other approaches in less stable environments. Example: Sales of certain commodities. 6️⃣ Expert Judgement A subject matter expert provides their opinion on future developments. Use case: When a strong track record of high forecast accuracy exists. This method requires appropriate questioning and should be combined with other techniques to reduce bias. 7️⃣ Machine Learning Complex statistical models, such as Neural Networks or Random Forests, are used to extrapolate trends from historical data. Use case: When historical data can somewhat reliably predict future outcomes, and considering many variables adds value.

These really summarise the techniques

Hans Gruber on why fInance always delivers… 🎄🎅🏻 Miracles include…. Amazon FP&A modeled Amazon Prime analyzing free shipping against a scenario offering 10% off orders. Today an average Prime customer spends $1,400 each year. Amwell When COVID-19 limited access to physician care Amwell’s FP&A modeled use rates based on 57,000 doctors delivering care. Chemours The Chemours team directly improved margins by creating models for each of their manufacturing sites across the $6 billion company. The Economist FP&A forecast subscription revenues for its 1 million customers to address the rise of digital as their “biggest risk and opportunity”. Lego Scenario planning during COVID-19 led to economic uplifts by reinvesting travel savings into working from home equipment. Levi’s FP&A foresaw and modeled the leap from skinny jeans to a baggie look among fashionistas. B&N Bank B&N bank, one of the largest banks in Russia, developed an analytical framework followed by a ranking system of the branches, which helped to increase the number of continuously profitable branches by 15%. Comparethemarket The FP&A team at Comparethemarket, a UK insurance company analyzed their credit card and loan journey creating better outcomes including cost savings for the business. IBM IBM's FP&A analysis proved that the PC market was not profitable leading to them selling its PC business to Lenovo for $1.25bn. This enabled them to focus on more profitable consulting, software, and service businesses. Happy Holidays #finance #christmas

Ok, I took everyone's advice and paid the $20 fee to OpenAI for access to the subject matter-specific GPTs, and I cannot stop tinkering. I I am going to continue with my fictitious lipstick company. One of the things finance nerds work on every year is projected revenue; what is the three-year outlook or long-range plan? I've included the prompt I gave one of the financial modeling GPTs below. This does not replace the host of forecasting tools that use AI in the marketplace. Share your prompts below. Me: can you help me create a financial forecast for my lipstick business in 2020 I had 100k in sales in 2021 200k and in 2022 400k and 2023 1m. i don't have any debt and have not raised any funds. i have 250k in the bank and only two employees myself which I pay 100k per year and an assistant that I pay 30k per year Financial Modeling GPT Absolutely, I'd be delighted to assist you in creating a financial forecast for your lipstick business. Your impressive sales growth and healthy cash position provide a solid foundation for this exercise. Let's start by summarizing the key information: Past Sales Performance: 2020: $100,000 2021: $200,000 2022: $400,000 2023: $1,000,000 Operating Expenses: Your salary: $100,000/year Assistant's salary: $30,000/year Total: $130,000/year Current Financial Position: Cash in bank: $250,000 No debt Now, for the financial forecast, we'll focus on sales projections, operating expenses, and net income. The historical sales growth shows a significant increase, particularly from 2022 to 2023. For forecasting, we can consider a couple of approaches: Linear Growth Forecasting: This method assumes sales continue to grow at a steady rate. However, given the substantial jump in your sales in the last year, this might be conservative. Growth Rate-Based Forecasting: We calculate the Compound Annual Growth Rate (CAGR) over the past years and apply it to project future sales. This might be more reflective of your recent growth spurt. Forecasting Sales: Let's calculate the CAGR: ����=(Ending ValueBeginning Value)1Number of Years−1 CAGR=(Beginning Value Ending Value )Number of Years 1 −1 Applying your sales figures: ����=($1,000,000$100,000)13−1≈1.442−1=0.442 CAGR=($100,000 $1,000,000 )3 1−1≈1.442−1=0.442 So, your CAGR is approximately 44.2%. Projecting Future Sales: Using the CAGR, let's forecast the sales for the next three years (2024-2026): 2024: $1,000,000 * (1 + 0.442) ≈ $1,442,000 2025: $1,442,000 * (1 + 0.442) ≈ $2,079,324 2026: $2,079,324 * (1 + 0.442) ≈ $2,997,658 Operating Expenses: For simplicity, let's assume your operating expenses (salaries) remain constant at $130,000 per year. This does not account for potential increases in salaries or other operating expenses you might incur as the business grows. Net Income Projections: Net Income = Projected Sales - Operating Expenses 2024: $1,442,000 - $130,000 = $1,312,000 2025: $2,079,324 - $130,000 = $1,949,324 2026: $2,997,658 - $130,000 = $2,867,658

“You can load up a non-machine learning forecast and then run comparisons over a long time horizon to compare to what the machine learning is generating, and then you can formally score it to see which is more accurate. We could see that the ML system over this known historical period is forecasting more accurately than our traditional non-ML forecast. On that basis, you know you’re going down a good path”, explained Matt Kohorst, a finance system architect at Polaris. #thoughtleadership #industryleader #financetransformation #digitaltransformation #OneStream #FP&A https://lnkd.in/eQZkXd9A

📊 Merchants and Merchandise Financial Planning Professionals, this message is for you! 📢 As a previous Merchant and Planning professional myself, I know how tedious and painful the planning process can be. Cobbling massive amounts of data together, over the course of many weeks (or months!) from various reports, spreadsheets, systems, notes from Monthly Hindsight Review or OTB meetings (!), leveraging historical data in an attempt to pull together a 'perfect plan'. And then bang, reality hits and it becomes constant in-season adjustments before you close it out and then, rinse and repeat. 😣 ❓What if I told you that you could leverage a solution that harnessed the power of AI to simulate potential future outcomes? A tool that was intuitive and could fetch insights, query data and help you by having human-like conversations with virtual assistant powered by Generative AI? How much better would that make your plan and more importantly, your life? 🤔💡 Guess what? We have a solution! 🤯 Check out our blog by Michael Orr, to see how Blue Yonder's Cognitive Merchandise Financial Planning solution radically re-shapes the foundational process of retail enterprise planning by combining predictive and generative AI, giving merchandisers the time and freedom to use their expertise and domain knowledge to drive faster, better and more agile decisions. https://bit.ly/3TY4WXg 📩 DM me for more details! #RetailPlanning #AI #MerchandisingTech #MerchandiseFinancialPlanning #opentobuy #Merchant #Merchandising #Buyer #MerchandisePlanner #RetailPlanning #GenerativeAI #BlueYonder

All this talk about AI is cool, I can't help wondering if much of the chatter from vendors is just a thinly disguised wail of relief that a brand new (and tangible) flow of income has been plugged into the ecosystem. Sure, all industries can gain from #LLMs in some way, but the main shorter term beneficiaries will be the chip manufacturers and the hyperscalers. Expect leapfrogging, landgrabbing and much lauding of all that is possible; hold fire on tangible results beyond the tactical for 18 months or so, for all but a handful of end-user organisations. Tune in next year for "LLMs not living up to the hype" and "LLMs are dead, long live LLMs" articles... oh and the inevitable "LLMs need XYZ to work properly" prognostications...

Digital transformation in finance is revolutionizing the way Financial Planning & Analysis (FP&A) managers operate. By leveraging the latest trends, they can offer more insightful, data-driven advice to clients, enhancing customer service significantly. **Automation** is a key trend. It allows for the streamlining of data collection and analysis, freeing up FP&A managers to focus on strategic decision-making. Tools like AI and machine learning can predict financial trends, providing clients with a competitive edge. **Cloud Computing** offers FP&A professionals access to powerful analytical tools without the need for heavy investment in infrastructure. This flexibility is crucial for adapting to the dynamic financial landscape and for providing scalable solutions to clients. **Data Visualization** tools have become indispensable. They enable FP&A managers to present complex financial data in an easily digestible format, facilitating clearer communication with clients and aiding in collaborative decision-making. **Cybersecurity** measures are more important than ever as financial transactions and data storage move online. FP&A managers must ensure that client data is protected against breaches, maintaining trust and compliance with regulations. **Mobile Technology** has made financial advice more accessible. Clients can receive updates and insights on-the-go, allowing for real-time adjustments to financial strategies. In applying these trends, FP&A managers act as architects of change, guiding clients through the digital landscape with expertise and foresight. The goal is to not only adapt to digital transformation but to harness it for creating value and sustainable growth for clients. This proactive approach is what sets apart a modern FP&A service in the digital era. #publicis #publicissapient #publicisgroup #amazon #intel #fpna

How to Build an Algorithm-Driven Business Model Like Amazon What companies can learn from Amazon’s data-driven decision evolution 👉 https://buff.ly/47N4Gks

Mastering Advanced Budget & Financial Performance Monitoring 🚀 Elevate your financial management skills with advanced strategies for monitoring budgets and financial performance. Here's how to stay ahead of the curve: Strategic Alignment & Scenario Planning 🎯 Integrate budget planning with long-term strategic goals. Use scenario planning to prepare for various economic conditions and market changes. Advanced Financial Modeling & Forecasting 📈 Implement dynamic financial models to simulate different business scenarios. Leverage predictive analytics to enhance forecasting accuracy and identify trends. AI & Machine Learning Integration 🤖 Utilize AI and machine learning algorithms for real-time data analysis and anomaly detection. Automate routine financial tasks to increase efficiency and reduce errors. Data-Driven Decision Making 🧠 Harness big data to gain comprehensive insights into financial performance. Use data visualization tools to transform complex financial data into actionable insights. Zero-Based Budgeting (ZBB) Approach 🔄 Adopt a zero-based budgeting methodology to justify all expenses from scratch. Increase cost-efficiency and resource allocation precision. Integrated Business Planning (IBP) 🏢 Align financial planning with operational and strategic planning through IBP. Ensure cross-functional collaboration for holistic financial management. By leveraging these advanced strategies and tools, you can significantly enhance your organization's financial resilience and agility. Stay innovative, stay strategic, and lead your financial performance towards unparalleled success!#AdvancedFinance #StrategicBudgeting #FinancialModeling #PredictiveAnalytics #AIinFinance #AgileFinance #IntegratedPlanning #RiskManagement #FinancialExcellence #amazon #capgemini #cognizant #wellsfargo #walmart #flipkart