My first book was ‘Present Sense’, which I co-authored with Steve Player. This is the story of how the book came to be written.

 

In 2003, I had the opportunity to introduce Beyond Budgeting ideas into Unilever as one initiative launched by Unilever’s Finance Academy. I was delighted but surprised to be given the opportunity to follow my passion, but I was well aware that most of the people I needed to influence were likely to find these ideas too big and scary if I tried to do too much too soon.

 

What I needed was a way to introduce these ideas where the resistance to change was likely to be minimal. 

 

I decided to focus on the process of financial forecasting. 

 

It was clear that everyone thought that the existing process was broken, and so would welcome fresh thinking. Once people had confidence in forecasts as a tool for helping them steer the business, my thinking went, they would be less scared of letting go of budgets.

 

This didn’t just apply to Unilever. Then as now, forecasting was a hot topic in business, but there was remarkably little guidance for practitioners about how best go about it. So, we knew that if we could provide this guidance, we would get a hearing with companies that would otherwise dismiss Beyond Budgeting ideas out of hand.

 

Like most practitioners I had built and run forecasting processes based on ‘common sense’ principles – and there was plenty of evidence to suggest that this approach didn’t work. When I started researching the subject, I soon discovered that there was an absence of structured knowledge about medium term business forecasting of the sort that interested me and my fellow finance professionals. The sort of forecasts that are needed to steer a business.

 

So, I set about creating a set of design principles, drawing on and adding to ideas from the well-established fields of operational (short term) and strategic (long term) forecasting.

 

The results are described under six main headings:

 

Purpose. All forecasts are created in order to serve a purpose, normally a particular set of decisions that need to be made. To design a good forecast process, you first need to identify what kind of information you need to be able to make these decisions. Also, it is critically important to differentiate between the purpose played by forecasts (expectations) and that of targets (aspirations).

 

Time. Two of the key design decisions are ‘how far ahead do I need to forecast?’ and ‘how frequently should I refresh my forecast?’ The former is determined by decision making lead times, the latter by the impact that different pieces of information have on decision making and how rapidly they are likely to change.

 

Models. All forecast employ models, whether they be statistical, driver based or judgement – the kind of model that sits in your head. The trick is to employ the most appropriate kind of model for the particular variable you are trying to forecast. There is no single ‘right way’ to do it.

 

Measurement. The goal of business forecasting is to produce information that can be relied upon for decision making purposes, and the only way to guarantee this is to measure performance and, if it is not adequate, to adjust the forecasting process and models accordingly. This is something that is rarely done well, if at all, with predictable consequences. 

 

Risk. The only thing that can be guaranteed is that forecast will be wrong, to some degree. One feature of successful forecasting is that there is a good understanding of how wrong they can be and what to do in mitigation.

 

Process. Good business forecasts are not the product of a once off or ad hoc process. They need to be produced in a timely and replicable manner. 

 

Although Present Sense was written over ten years ago I think it holds up well. I haven’t seen a need to issue a new edition and I am not aware of another book on the market that has supersedes it. 

 

But as anyone has been through the experience knows, however, when you write a book you learn a lot. In particular you learn what you don’t know. 

 

The quest to understand more about how to measure forecast quality led me to develop a new methodology which spawned a software business (Catchbull) and another book (The Little Book of Operational Forecasting). Also, I was never happy that I had fully nailed the risks and uncertainty in the book. And this concern with how best to represent and deal with things that we cannot measured with precision resurfaced over a decade later and is now the focus of my current research activity.

 

You can buy ‘Present Sense’ through the normal retail channels or direct from the publisher, Wiley and Sons.