According to The Hackett Group, which surveyed 70 large companies in the US and across Europe, two out of three missed their quarterly earnings forecasts by anywhere between 6% and 30%. It added that companies were finding it much harder to forecast sales growth by quarter, with 14% of companies characterising themselves as high risk or high volatility – and that this could double by 2010.

“It’s shocking to see this level of poor performance in such a key area,” said Fritz Roemer, head of Hackett’s enterprise performance management executive advisory programme. “We’ve seen companies take severe hits in the past few years after missing forecasts. Analysts suddenly question the competence of leadership; stock prices become unstable and valuation drops. In some cases, CFOs have had to resign yet companies still refuse to make the necessary efforts to get this area under control.”

Hackett said current forecasts model used by most companies didn’t work and recommended moving to rolling forecasts that take into consideration business risk and volatility, and increasing transparency of forecasts.

Roemer added, “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.”
www.thehackettgroup.com