The Survey Says: Four Out of Five Companies Can’t Forecast Mid-Term Cash Flow

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.

The Industry Week article can be accessed here.  An executive summary of, and conclusions drawn from, the Hackett Group study can be located here.

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