Leadership Tip #13: Invited guests: Improving financial forecasting

Brought to you by Raytheon Professional Services
By Bill Russell, Raytheon Professional Services

When we have an important forecast to prepare, it is important to be sure we invite two guests to the session where the final numbers will be agreed upon. Executives say that improving our ability to forecast is important today because of our terrible track record recently. Despite all the new IT tools at our disposal, our forecasts have not improved much since the days when we prepared them on Big Chief tablets and No.2 pencils. (Remember the recent financial crisis?)

Important forecasts, of course are those critical milestones that others will look back on and measure your performance against. They might include proposals, annual budgets or strategic plans. The session I refer to is that final review where the team looks over a preliminary version of the forecast, validates the numbers and agrees to the commit to live by them. It is at this session where we need to critically examine our assumptions and models.

At Raytheon Professional Services Performance Consulting, we have found that if we invite two guests to the final review meeting, we can come to a much better understanding as to the amount of risk in the final forecast. The key to inviting these guests is for the leader point to a critical assumption in the forecast and ask "How do you know this?"

In our experience, a member of the team will usually answer: "This is our best judgment." You have now met the first guest: The Voice of Experience. This is an important guest to have present. It took years to gain this asset, and we need all of the experience we have. But we need more. If only The Voice of Experience joins the discussion, the forecast may be inadvertently distorted.

The leader needs to ask again "How do you know?" An amplification of this second repetition is: what actual recorded data from events in your past leads you to believe this? Let's retrieve it and make a graph of it. This is the crucial step that invites the second guest: The Voice of the Data.

Having both our intuitive judgments and some real data together at the same time sparks a much richer discussion in the team’s final review of the forecast. Now people join in the debate, and there is give and take. Were these incidents the same or not? What will this situation be like? The result is true collaborative discussion in which all parties will become much better informed. We never are perfectly sure, but we will have a much better understanding of the forecast and the possible risks we take. This is informed decision making.