How can you develop a financial forecast as an executive manager?

Some of the critical factors in developing a financial forecast are historical trends, market and industry trends, key assumptions and sales forecast. Build your financial forecast model considering these inputs and try to make it dynamic and revisit and adjust it to reflect changes in business environment and key inputs.

To develop a credible financial forecast, one first has to know their costs. That is one of the oldest concepts in business and it applies to pricing as well. A good financial forecast requires strong knowledge of the business itself, the market, Lean Business methods, and experience in tangible Continuous Improvement. The forecast is realistic considering the market, market changes, and anticipated changes to be made in a well run business machine. Sales and future cost projections must be melded together so a respectable bottom line is produced. Methodology in achieving a strong forecast must also be considered. All of the "hard questions" must be answered....who, what, when, where, why and how in the business model are answered.

Except for brand new businesses without history, work closely with the sales professionals within the company. They can provide the info used to build a sales funnel ($ amount, margin, timing and probability of close). Added to this look at the historical core business - how much is recurring revenue? Finally, do market assessment on one-off or disruptive opportunities that will be in play.

The first financial forecast you make will be inaccurate. Like learning any new skill, over time, it can become extremely precise if you put in the work to continuously analyze the variance and discuss the rationale between your forecast and actual data. As you closely monitor and update the data, you will also learn key historical trends which will help future forecasts be more accurate.

When making forward looking statements, there is wisdom in taking an all things considered approach, factoring in numerous variables, possibilities and nuances while keeping on a single narrative.

Forecasting is that that difficult - one only has to understand the respective life cycles of products and markets. Start by collecting data on the quantity sale of products and analysis trends to assess where those products may be in their life cycle journey. Still in growth or maybe already entering maturity or perhaps entering decline? Once this can be assessed with reasonable confidence - future likely trends can be extrapolated. The better one understands a business- the more accurate assumptions about life cycle positions one can deduce.

As a PMO leader, I collaborate closely with account executives to analyze the sales pipeline and project the probability of winning new business. Simultaneously, I engage with project and program managers to forecast project revenues and expenses throughout the year. This dual approach gives me a comprehensive view of incoming and outgoing financial flows. It enables me to maintain consistent gross profit margins on projects and provide accurate insights into the financial health of the PMO function for leadership decision-making. This practice is essential for developing effective financial forecasts in an executive management role.