Timely market response important in this age of rapid change

There are so many uncertainties affecting the business performance most companies have to deal with from time to time – for example, the entering of new competitors, fluctuation of foreign currencies, impacts of online business platform, geopolitical pressure and so on. It is increasingly difficult to forecast the consequences and developments of a particular incident, which can result in the need for rapid change of strategies. Thus it is crucial for management to ensure that team members can respond to all these challenges in a timely fashion.

Being responsive should happen at all levels of the organisation structure starting from an individual to the departmental and business units. To connect most parties involved in the business, one of the tools to be considered is the rolling forecast of the business and operations under one’s responsibilities.

The timeline can generally be on a weekly or monthly basis. For example, a purchasing manager may want to review the purchase plan taking into account the current inventory status and the past sales performance. The production manager may want to increase production volume for the next three months due to an expected rise in demand for products. The controller may want to see the future performance of the company based on the profit and loss statement format.

Doing the rolling forecast by reviewing the future plan can open an opportunity for the responsible person to evaluate the latest situation and make necessary adjustments to reflect it in the new revised plan. This process should be integrated and connected to all concerned parties so that everyone can be on the same page with the complete information and clear picture of the future. The basic process of rolling forecast can be as follows:

Understanding the past performance – before making any changes to the future plan, it is necessary for the responsible people to understand the actual performance in the past and see how the result is different from the original plan. For instance, the actual sales against budget, the actual units of production compared with the target for the month, and the bottom-line of the company’s operating results as compared to the budget. 

Reviewing the current situation – involves analysis and assessment of the key factors that could affect the main operational results. It is inevitable to consider both positive and negative aspects of an incident. For example, during the tension of a situation in the market that can possibly impact on company sales growth, it is important for a manager to forecast the most likely case of the operational result before proposing counter measures to cope with the uncertainties.

Updating the original future plan with the new forecast – needs to include the factual data gathered so that the new forecast will be most accurate. In developing the new forecast numbers, it could probably lead to disagreement from concerned people in the business cycle. However, the responsible people should make necessary adjustments and develop the new forecast based on reasonable assumptions rather than unrealistic judgment.

Once the actual results of the new period are announced, the new forecast process can be started again, according to the same business cycle – analysis of the actual performance should be done to better understand what caused the discrepancies. Finally the analysis should lead to the better forecast of the next round with higher level of accuracy.

 

Dr Yanyong Thammatucharee is Senior Vice President for Accounting and Finance at Central Marketing Group. 

He can be reached at [email protected]