Metrics and forecasting are a way of providing financial reporting that is more accurate than the current methods we use today. The process has been used in nearly every industry since the introduction of mass production. Although there are different types of methods, the concepts and basic idea behind them are still very much intact. There are four main types of metrics that are used in the Financial Reporting process:
Financial metrics are primarily used for determining what actions should be taken and how to measure them. Many companies today have built their business on this very foundation but have not had any success because they have been unable to depend on metrics and forecasting for accurate forecasts. The metrics and forecasts provide a good means of evaluating where changes should be made, which will then affect how business is conducted. The problem with relying solely on metrics and forecasting is that you cannot test hypotheses without the data, and thus you cannot conduct an accurate forecasting.
Businesses involved in supply chain management, manufacturing and human resources to realize that customer acquisition is crucial to the success of any company. This concept is very closely linked to financial forecasting, since most companies do not have the expertise or time to collect and analyze customer data. Metrics and forecasting can help improve the accuracy of financial reporting by providing information about customer acquisition activity. For example, if the ratio of new customers to existing customers changes by one percent, this may indicate that the company’s marketing strategy is not working. By combining traditional financial reporting with new methods of analyzing customer data, companies can provide better forecasts about their future profit margins.
Metrics and forecasting can also be used together to provide improved revenue forecasting. If the kpi’s used in the traditional Financial Reporting process are incorrect, companies can end up with inaccurate revenue forecasts because the kpi itself is wrong. Metrics and analytics can help provide information to the manager that will allow them to make a correct forecast of future earnings. By using data sources from across the organization, data sources can be verified and analyzed, which can result in improved revenue forecasting.
Improved cashflow forecasting is often a result of metrics and foresight applications being used together. In order to improve cashflow forecasting, the ability to collect, analyze and report accurate and timely data on customer transactions is necessary. This allows managers to make better decisions based on reliable indicators such as customer satisfaction and return on investment. Data collection, analysis and reporting become much easier when data sources are verified and validated. Data validation ensures that the collected data is consistent and reliable and this improves the likelihood that managers can make informed decisions regarding the management of the company’s cashflow.
Metrics and forecasting can greatly improve KPIs and profits. The use of metrics and foresight analytics provides a significant benefit to managers when it comes to achieving success. Improved KPI’s and profitability can result from the implementation of metrics and forecasts. Metrics and forecasting applications are useful for improving the effectiveness of management strategies and also provide a method of predicting future profitability. Businesses should therefore consider all of their options before investing in a KPI tool.