Avoiding profit warnings
What are the risks of an earnings shock?
In any company there will be some business units which consistently under-perform, some which tend to come in on budget and some which consistently exceed their targets (perhaps via deft budget negotiation). Once a group’s CFO has spent a few years becoming acquainted with the colleagues running these businesses, he or she will be able to compensate for their forecast bias via some form of central provision.
The difficulty here is in finding an objective way of explaining the Head Office viewpoint to the subsidiary concerned. This informal system also tends to collapse when business uncertainty increases or when a long-standing CFO leaves and the new incumbent lacks these intuitive antennae. At such times a multinational corporation becomes dangerously exposed to the risk of profit warnings.
If we want to find a way to amplify a seasoned Finance Director’s intuitive understanding of subsidiary forecast bias, we therefore need not only to monitor the latest forecasts of each of our subsidiaries but also to find a way of visualising their own effectiveness as forecasters over a period of time.
By applying simple risk scenarios to the trend of incoming data we can take the emotion out of the process of challenging subsidiary forecasts and budgets.
What are the risks of an earnings shock?
In any company there will be some business units which consistently under-perform, some which tend to come in on budget and some which consistently exceed their targets (perhaps via deft budget negotiation). Once a group’s CFO has spent a few years becoming acquainted with the colleagues running these businesses, he or she will be able to compensate for their forecast bias via some form of central provision.
The difficulty here is in finding an objective way of explaining the Head Office viewpoint to the subsidiary concerned. This informal system also tends to collapse when business uncertainty increases or when a long-standing CFO leaves and the new incumbent lacks these intuitive antennae. At such times a multinational corporation becomes dangerously exposed to the risk of profit warnings.
If we want to find a way to amplify a seasoned Finance Director’s intuitive understanding of subsidiary forecast bias, we therefore need not only to monitor the latest forecasts of each of our subsidiaries but also to find a way of visualising their own effectiveness as forecasters over a period of time.
By applying simple risk scenarios to the trend of incoming data we can take the emotion out of the process of challenging subsidiary forecasts and budgets.
Client benefits
"The integrity and reliability of internal forecasting is essential to ensure effective external communication of market expectations. Forecasts are inherently uncertain and the Metapraxis techniques provide a powerful analytical tool to evaluate the likelihood of achievement."
CFO, World Class Engineering Group
"The 'windsock' business analyses are extremely useful in highlighting performance against budget and likely out-turns. The key thing they tell you is not just where you are now, but where you are likely to be if you don't do something about it."
Group Controller, Global Services Group
Group Controller, Global Services Group