The Gumshoe CFO: Before You Forecast, Do Some Sleuthing

Ann Jones October 24th, 2018

Building an accurate forecast relies heavily on your historical data. But it’s the hands-on business knowledge you apply to the forecast that helps make it a more predictive and actionable roadmap for your institution.

Before you start your forecasting process, take the time to gather updated information. For example, you should:

Consider future business decisions

What, if anything, may occur over the next 12 to 18 months that could help or hurt the institution’s performance. For example, you should know if there are plans to open or close branches, sell or purchase property, launch a new product offering, or grow or shrink the workforce.

Check in with the board

The board of directors may have plans that will affect future financial targets. They could include strategically resizing the company, offering it for sale, or planning an acquisition.

Contemplate interest rates

It’s important to think critically about what rates will do in the future. Historical data won’t be accurate enough for your forward-looking forecast. Additionally, as rates change, what will happen with the loan portfolio? Are there large loans that will renew or reprice? What’s in the loan pipeline?

Evaluate large expenses

Review expenses to determine if you have any new one-time expenses, any new recurring expenses, or whether you have expenses that will roll off the books.

Confirm financial goals

Set the goal for your forecast based on the most current financial goals of the institution. Surprisingly, this step does indeed get overlooked.

Set assumptions

Use the assumptions template in Dashboard to set numbers or percentages for metrics such as, charge-off ratio, risk-weighted assets/total assets, min tier 1 leverage ratio, targeted ROA and ROE, and more. You can make these assumptions at a macro (consolidate) or micro (cost center) level and apply them to your forecast.

Adjust the balance sheet

Using your Dashboard, adjust any numbers necessary to reach the goals of your forecast. Look for breaks in trends and normalize them by entering data manually.

Fine-tune the income statement

Work your way through the income statement in Dashboard until you have adjusted any percentages necessary to reach your forecast goal. Just like you did with the balance sheet, look for breaks in trends normalize them by manually entering data.

The sleuthing you do ahead of the forecasting process will help ensure that your forecast is accurate and helps guide you toward your goals. A critical step in the performance management cycle, the process of forecasting often reveals new financial opportunities – especially in the net interest margin. Take a close look when you do your next forecast.

If you would like to like more information about forecasting with Dashboard, there is a dedicated team of client support consultants ready to help both our clients and those considering Dashboard.

This content is accurate at the time of publication and may not be updated.