What are the significant elements to consider when developing a forecast?
It’s important to understand the key performance indicators at your company and what variables have the biggest impact on your overall performance. A forecast is not just a finance tool but an operational tool, something that you build based on detailed knowledge of each business unit or product line. The metrics that are used to drive the forecast should be the same metrics that senior management uses to monitor ongoing performance and the same metrics that business unit managers are held responsible for managing. And a good financial forecast should include explicit identification of fixed versus variable costs, because the magnitude of the near-term risk to a business is often a function of the level of its fixed costs. Finally, forecasts should reflect a focus on key risks impacting the business. For instance, while fuel prices have been more stable than they were a year ago, they still have the potential to have a dramatic impact on many businesses. Because of this potential impac
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