Metrics and forecasting are two integral concepts when it comes to business, and Forecasting and Metrics are often used interchangeably. Although both concepts are rooted in the same basic foundations, they are very different from one another. Where forecasting and metrics differ is that a forecast is more definitive while a Metric is more descriptive. Some common factors that affect both concepts are:
There are many items which can be classified under the heading of Metrics and Forecasting. One such item is Productivity. This term pertains to the overall rate at which an entity is operating. Although this concept includes an item which is normally associated with productivity, it is also applicable in a much smaller scope. For instance, the productivity of a company does not solely include the rate at which they produce goods and services but also how efficient they are at delivering those goods and services.
Another example of a concept which falls under the category of Metrics and Forecasting is Customer Loyalty. This again is very broad and covers all areas of operations including product, service, marketing, sales, and customer satisfaction. In order for a business to be able to come up with a reliable forecast, it needs to consider the aspects that are necessary for measuring customer loyalty. Two important aspects for measuring customer loyalty would be customer recall and customer loyalty rewards.
Revenue forecasting is also based on the basics of Metrics and Forecasting. The measurement of revenue is done by calculating the product or service sale to the payer. Once this is calculated, then the company can come up with an estimate of revenues. But since no single calculation can provide a reliable forecast, there are other factors which need to be considered, which in turn produces a Metric. One of the important factors would be the variations in the cost of doing business.
Metrics and forecasting tools for companies who use traditional accounting methods may find it difficult because they are primarily concerned with balancing the books. They cannot deal with the many complex issues which surround a company like the funnel and the ACV. They therefore tend to rely solely on the income statement only. However, in order for an accountant to provide a robust forecast, he or she must include a variety of other factors in his or her financial model which would include the factors mentioned earlier which are necessary for Metrics and Forecasting.
For a company to be able to come up with a decent Metric and forecasting approach, then he or she has to add a variety of other factors into his or her model. For instance, revenue forecasting would require an accountant to take into consideration the variation in cost of doing business as well as changing customer preferences. Similarly, financial reporting is primarily based on the number of new customers that come into the company and not much on the number of customers that have left. Thus, if an accountant were to include the number of new customers that have come into the company in his forecast, he or she will likely understate the number of new customers that actually come in. By including all these factors into their financial forecasting models, it becomes possible to provide a decent level of Metrics and Forecasting for all industries in the market.