Cash forecasting. It’s a major part of every treasurer’s role and is fundamental for effective treasury planning. However, it has also traditionally been an area where many teams have had challenges. In fact in the annual Kyriba / Association of Corporate Treasurers survey that was released back in May, a lack of forecast visibility was the second most commonly cited risk for treasurers, and likewise improving forecast accuracy the second biggest priority for treasurers in the coming year.
The good news from this is that it seems like treasury professionals are starting to heed their own words. On a recent Kyriba / Treasury & Risk webinar, we asked attendees about their cash forecasting accuracy and challenges, repeating a poll we took in mid-2014. Last year, 61% of respondents said that their forecasts were either “somewhat” or “very” inaccurate, and in 2015, this number has fallen to 53%.
On the upper end of the scale, in 2014’s poll, under a third of respondents (32%) said that their forecasts are “accurate” (meaning a limited amount of insignificant variances), and no respondents viewed their forecast as “highly” accurate, meaning almost no variance. A year later, these numbers had increased to 40% and 2% respectively. While this still means that less than half of treasury teams’ forecasts are deemed to be functionally accurate, it still represents an improvement of 31% year-over-year.
So what are the likely reasons behind this? A probable answer is the improvement in treasurer’s cash visibility. When quizzed on their biggest challenges, almost two-thirds of last year’s respondents (65%) cited the lack of visibility into all forecast data inputs. This year, that figure had fallen to 46% – a major improvements. Of course there’s a broad range of potential reasons for this: greater penetration of treasury management systems; better training; and so on. However, the number of respondents (322 in 2015 and 212 in 2014) suggests that the change isn’t just a statistical blip.
There is obviously still a significant amount of room for forecast accuracy improvement, but the changes over the past year are a big step forward and cannot be discounted. Whatever the cause of the improvements, the fact is that accurate forecasting is a cornerstone of an effective treasury team, and without it, the strategic impact that treasury can have is somewhat limited. Establishing a reliable, accurate forecast gives treasury the foundational knowledge and insight to add meaningful business benefits across the organization.
Perfecting Cash Forecasting: Adding Business Value to the Organization.
Poll results – 2015 vs 2014
|How accurate is your cash flow forecast?||2015||2014|
|Highly accurate (almost no variance)||2%||0%|
|Accurate (some variance, but not significant)||40%||32%|
|Somewhat accurate (some significant variances)||49%||53%|
|Very inaccurate (major variances)||4%||8%|
|Variances aren’t analyzed||6%||8%|
| || || |
|What is your biggest cash forecasting challenge?||2015||2014|
|Don’t have visibility into all forecast data inputs||46%||65%|
|Lack of communication with other stakeholders||26%||20%|
|Don’t have time / resources||12%||10%|