What is meant by Forecasting?
Forecasting is an essential component of financial and business management that aims to predict future financial results and developments based on existing data and assumptions. These predictions serve as the basis for strategic planning, budgeting, investment decisions, and risk management. Forecasting may encompass various financial metrics such as revenues, costs, profits, and cash flows and is often utilized by businesses of all sizes as well as financial experts and consultants to make informed decisions.
Typical features of software in the forecasting area include:
- Data Integration: Import and integration of historical financial data from accounting systems, ERP systems, and other sources.
- Modeling Tools: Tools for creating and adjusting forecasting models based on historical data and future assumptions.
- Scenario Analysis: Ability to perform scenario analysis to evaluate various development possibilities and their impacts.
- Automated Calculations: Automated calculation of forecasted financial metrics considering parameters and assumptions.
- Graphical Representation: Visualization of forecasting results through charts, graphs, or dashboards for easier interpretation.
- What-if Analyses: Conducting what-if analyses to understand the effects of changes to assumptions on the forecast.
- Export and Reporting: Exporting forecasted data and generating reports for internal communication and decision-making.