Hackett Research Alert: Despite Prospect of Harsh Punishment By Wall Street, Most Companies Fail When Forecasting Earnings & Sal
February 12 2008 - 9:30AM
Business Wire
Despite a market environment where missed earnings projections can
lead to sharp stock declines, CFO firings, or worse, most companies
fail to accurately forecast earnings and sales, according to new
research by The Hackett Group (NASDAQ: HCKT), a global strategic
advisory firm. According to results from Hackett�s new Book of
NumbersTM research �Aligning Forecasting Practices with Market
Dynamics,� two out of every three companies are unable to
accurately forecast earnings for the next quarter, missing the mark
by anywhere from 6% to over 30%. Companies do only slightly better
when forecasting sales, according to Hackett�s research. More than
half of the companies in the study were unable to accurately
forecast sales for the next quarter. Accurate forecasts, for the
Hackett study, are defined as being within 5%of actual results. In
addition, forecasting is becoming significantly more challenging,
the Hackett research found. 14% of all companies in the study
characterized themselves as high risk/high volatility, a seven-fold
increase over just three years ago. And Hackett believes this is
likely to continue to increase, perhaps by nearly 50% over the next
two years. �It�s shocking to see this level of poor performance in
such a key area,� said Fritz Roemer, who leads Hackett�s Enterprise
Performance Management Executive Advisory Program. �We�ve seen
companies take severe hits in the past few years after missing
forecasts. Analysts suddenly question the competence of senior
leadership. Stock prices become unstable and valuations drop
dramatically. In some cases, CFOs have had to resign. Yet companies
still refuse to make the necessary efforts to get this area under
control.� Hackett�s Book of Numbers research outlines an array of
ways world-class companies improve the forecasting process. Hackett
recommends that most companies move from year-end to rolling
forecasts, which enable companies to more accurately match
forecasting horizons to the reality of turbulent market dynamics.
Today, only about a third of all companies utilize rolling
forecasts, and that percentage has not changed significantly since
2004. Hackett also recommends that companies consider business risk
and volatility when determining forecasting frequencies and
horizons. While a company in a low-risk, low-volatility environment
might manage with a six to eight quarter rolling forecast updated
twice per year, a company that sees its environment as high-risk,
high-volatility might find a rolling forecast updated monthly to be
more appropriate. Hackett�s research also strongly recommends that
companies set accuracy targets for forecasting. While the majority
of companies measure forecast accuracy, Hackett�s research showed
that only 20% currently maintain accuracy targets. Finally, Hackett
found that leading companies manage forecasting accuracy by making
the forecast bias transparent and successfully changing the
behavior of forecasters. �These are very basic steps that almost
any company can use to significantly improve their forecasting,�
said Hackett Finance Practice Leader, Global Advisory Programs
Bryan Hall. �By using rolling forecasts, which force companies to
look beyond the artificial horizon of their year-end, by
considering risk and volatility, and by measuring accuracy in
forecasting, companies can make real improvements in this key area,
and reap rewards from the investment community.� Hackett�s
Forecasting Book of Numbers research analyzed results from more
than 70 large U.S. and European companies. All of the participants
operate globally. The research volume, which is available
exclusively to members of Hackett�s Enterprise Performance
Management and Finance Executive Advisory Programs, looks at five
key perspectives on forecasting: Aligning Horizons and Frequency
with Market Dynamics; Disentangling Forecasting from Budgeting and
Management Reporting; Creating a Rolling Forecast that Works;
Improving the Forecasting Process; and Creating Accurate Financial
Forecasts. It includes case histories describing the efforts of
several companies to achieve world-class performance in
forecasting, and also offers nearly 50 charts detailing Hackett
research metrics in this area. About The Hackett Group The Hackett
Group (NASDAQ: HCKT), a global strategic advisory firm, is a leader
in best practice advisory, benchmarking, and transformation
consulting services including shared services, offshoring, and
outsourcing advice. Utilizing best practices and implementation
insights from more than 4,000 benchmarking engagements, executives
use Hackett's empirically based approach to quickly define and
prioritize initiatives to enable world-class performance. Through
its REL division, Hackett offers working capital solutions focused
on delivering significant cash flow improvements across business
operations. Through its Hackett Technology Solutions Group, Hackett
offers business application consulting services that helps maximize
returns on IT investments. Hackett has worked with 2,700 major
corporations and government agencies, including 97% of the Dow
Jones Industrials, 73% of the Fortune 100, 73% of the DAX, and 45%
of the FTSE. Founded in 1991, The Hackett Group was acquired in
1997 by Answerthink which was renamed The Hackett Group in 2008.
The Hackett Group has global offices in the United States, Europe
and India. More information on The Hackett Group is available: by
phone at (770) 225-7300; by e-mail at info@thehackettgroup.com; or
on the Web at www.thehackettgroup.com. Book of Numbers is a
trademark of The Hackett Group.
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