Financial forecasting off by average of 13%, KPMG finds

In a study that might be of interest to D&O insurers, KPMG and the Economist Intelligence Unit have co-authored a report, ‘Forecasting with Confidence,’ which notes that “although organizations invest significant time and effort in this important task [of financial forecasting], only one in five currently produce a forecast that is reliable.”
The report is based on a global survey of more than 540 senior executives involved in the forecasting process from a cross-section of industries, including 168 CFOs.
The research builds on a previous study by KPMG and the Economist Intelligence Unit, in which senior finance professionals from a range of global organizations identified planning, budgeting and forecasting as the key area in which CFOs were most dissatisfied with their current capabilities. They listed forecasting as their top priority for improvement in the next three years.
The report ‘Forecasting With Confidence’ notes that in the past three years, only 1% of companies have actually hit financial forecasts exactly. Just 22% of companies have come within being 5% of their forecasts either way.
On average, companies miss their forecast targets by 13%.
Almost half of the study’s surveyed organizations believed the reliability of their financial data was merely “adequate” or worse.
A third of the respondents said they considered the technology their companies currently used for forecasting to be a “notable impediment.” Nearly all companies used spreadsheets in some part of their forecasting, but “more worryingly,” the report noted, “40% of them rely solely on spreadsheets to produce the forecast.”
Finance executives in the survey pointed to three main ways to fix the system:
The first priority, cited by 42% of respondents, is the need to use technology to automate the forecasting process.
The second priority, again cited by 42% of respondents, believe scenario planning would be a useful tool to understand future developments that could impact their forecast;
Finally, 40% of respondents believed rolling forecasts would be ” highly beneficial in improving their performance in this area.”