|Five Questions on Risk-Adjusted Forecasting and Planning.|
By Deloitte UK
Friday, 23rd August 2013
Companies today face a dizzying array of risks, from regulatory pressures and competitor actions to talent shortages and cost volatility – and everything in between.
These risks can have a significant impact on financial performance. Yet most financial forecasts and plans still revolve around single-point estimates and metrics that don’t objectively consider a company’s unique combination of key risks.
An interview with Nick Pope, director, Deloitte UK and a closer look by Charles Alsdorf, director, Deloitte Financial Advisory Services LLP in the United States.
In this issue of Risk Angles, Nick Pope discusses an approach to forecasting and planning that analyzes and tests multiple risk variables to help executives present forward-looking numbers with greater confidence – and manage key business risks more effectively. Then, Charles Alsdorf shares his perspective on how CFOs can benefit by taking an investor’s view when preparing forecasts and plans.
A closer look: Taking the next step
By Charles Alsdorf
When it comes to forecasting and planning, it’s useful to think like an investor or analyst. A risk-adjusted approach provides deep insights into the risks and assumptions behind a company’s forward-looking numbers. This typically gives those involved – both internally and externally – much greater confidence that the forecasts and plans are realistic and achievable.
Capturing risks and planning assumptions in a quantitative model supplements existing estimates and intuition with systematized rules that can be analyzed and improved. The result? Greater transparency, repeatability and rigor.
Plus, improved integration with the risk management and strategic planning processes enables the forecasting and budgeting process to tap into existing organizational knowledge about key business risks – without having to reinvent the wheel.
In fact, risk-adjusted forecasting and planning doesn’t just produce more accurate and reliable numbers; it can actually boost business performance by improving a company’s understanding of key risks – and their likely impact -- so leaders and managers can take action to avoid or mitigate problems before they occur as well as take advantage of opportunities to enhance value by leveraging the upside of risks. This can also support investment decision-making and capital allocation processes.
Given the growing complexity and uncertainty in today’s global business environment, we believe companies that adopt risk-adjusted forecasting and planning will be better positioned to gain a competitive edge. Conversely, those that don’t may be stifled and be exposing themselves to unacceptable levels of risk.
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