02 Aug The Survey Says: Four Out of Five Companies Can’t Forecast Mid-Term Cash Flow
On Tuesday, Industry Week reported results of a recent study by Miami-based Hackett Group, Inc. which indicates that four out of five companies are unable to forecast mid-term (2-3 months out) operating cash flow to within 5% accuracy.
In an operating evironment where cash is king, that’s sobering news.
The study also reported that “top performers” do significantly better than their peers. A total of 74% of such top-tier companies are able to forecast mid-term cash within 5% accuracy. These top performers also complete their forecasts in less than half the time it takes typical companies, and require fewer staff to complete the process.
Among other findings:
– About 70% of all companies surveyed rely almost exclusively on standalone spreadsheets as their primary cash forecasting tool.
– A related Hackett survey also found that while forecast accuracy is measured by most companies, 80% don’t set accuracy targets and 85% do not incentivize improved accuracy.
– The best companies also have cross-functional teams with significant operational involvement.
– Top performers know their customers and suppliers better, conduct more frequent credit reviews, and have in place better-structured, interactive dispute resolution processes.
– Top performers look at operational leading indicators and macroeconomic assumptions 40 percent more often than typical companies, are 62% more likely to rely on best/worst case assumptions, and turn to what-if analyses 79% more frequently.
– Predictably, top performers are about 50% more likely to offer a range of numbers, footnotes and scenario analysis as part of their forecast, while others are not.