Business Forecasting: Lessons from the Accounting Malaise
The charges are familiar: lack of transparency and credibility, distortion of numbers in response to short-term pressures, and narrow agendas, even betrayal of the professional duties and mission. No, it’s not corporate accounting. These are the ills of business forecasting, the “other” accounting.
By Udi Meirav and Robert Hewes
Directorship, March 2003
The charges are familiar: lack of transparency and credibility, distortion of numbers in response to short-term pressures, and narrow agendas, even betrayal of the professional duties and mission. No, it’s not corporate accounting. These are the ills of business forecasting, the “other” accounting. Alas, business forecasting provides an eerily analogous, if perhaps less public, counterpart to today’s accounting malaise.
Whether overestimating demand for optical fiber, underestimating manufacturing capacity for a new blockbuster product, or just missing projected revenues, forecasting remains a frustrating pursuit, and frequently an object of derision. Yet its failure is largely shrugged off as merely part of our inability to know the future. Unquestionably, the future is difficult to assess and impossible to know precisely. However, much of the well-documented failure of business forecasting arises not only from its inherent difficulty but also from confusion about its mission and how it ought to be carried out.
To restore forecasting’s tarnished reputation, we first need to return it to its true mission of providing insight, not certainty, and we need to restore its credibility through a combination of candor and transparency about the validity — not the absolute truth — of all our assumptions, interpretations and logic.
