Forecasting is an essential skill for school finance professionals and admissions managers. Many international schools are faced with increasing levels of competition and pressure, which in turn means that they are more reliant on forecasts and budgets. In this article our Managing Consultant Russell Cooke looks at ways in which you can make your forecasting process more robust.
Business decisions of all kinds depend on effective approaches to looking ahead – budgets and cash flow forecasts drive operational and financing decisions; market forecasts drive strategic decisions and so on. Compared to other organisations, schools are in many ways easier to forecast, nevertheless, there is no room for complacency and this article sets out to help you develop your forecasting skills. Good forecasting requires that you adopt a rigorous process that will include key steps like identifying appropriate enrolment information, exchanging views with others, making regular forecast updates—and keeping score. This last step is critical, If you don’t measure your forecasts against reality, it is all but impossible to improve your accuracy.
You should apply effort to improving the accuracy of your forecasting (for example through analysis of enrolment and enquiry data), if you think it will payoff. This will mean assessing, how predictable is your assumption? What support do you get from existing resources in making that assessment? Which new resources or effort could make a difference?
Where possible breakdown complex forecast questions into knowable and unknowable items, note assumptions and areas of ignorance.
Look for comparable external viewpoints for the events or questions that you are making a forecast about. Ask yourself, how often do things “of this sort” happen in
situations “of this sort"? The natural thing to do is to treat the question before you as unique—and in certain senses it may well be unique. However, the best forecasters blend the inside view (stressing uniqueness) with the outside view (stressing similarities with instructive historical precedents). For example, you may forecast that your health care insurance costs are growing by 6%, but ask yourself the question how many other organizations are forecasting the same?
Review and where necessary update the assumptions or beliefs on which your forecast is based. This review process is to forecasting as brushing and flossing are to dental hygiene, Boring, but they payoff in the long term. Updating requires identifying relevant information from a wide variety of sources and adjusting this external information to your internal forecast.
Identify and weigh up the arguments that support your forecast. When you have a strong causal argument for an assumption, look for an equally strong counter. An effective technique to improve the quality of the forecast assumption is to make the case for an alternative. If there is a discussion at a Finance Committee meeting about budget or enrolment assumptions, with opposing views of members. An effective technique to improve the quality of the discussion is for each side to make the case for
the other side. If it’s done successfully, each side will be able to say: “Yes, that’s pretty much the way I would say things.” Minds aren’t necessarily convinced by this process, but they will be opened up and promote a full exchange of information that is essential to good forecasting.
Better forecasting involves a good appraisal of uncertainty. It requires translating assumptions into numeric probabilities, and this requires practice. However remember what we wrote earlier assess how much energy you should invest in distinguishing degrees of certainty. In addition beware of reporting the results of statistical models or other analyses in a way that implies more precision than is realistic. In working with a Finance Committee or Board pseudo-precision may also damage your credibility.
Balance the needs for prudence and decisiveness, acknowledge the risks of both rushing to judgment and dawdling near “maybe”. Delivering a good forecast requires taking the time to gather as much information as possible, hear from competing perspectives, filtering out less relevant data, and synthesising what really matters
into a considered probability estimate. However, taken to an extreme, forecasts can become riddled with so many contingencies that the qualifiers add more confusion than clarity, leaving a Board or Finance Committee without useful information to increase their confidence in the decision they need to make. Taken to an extreme, a lack of nuance and a rush to judgment undermines the credibility of the forecast and
once again a Board maybe left without the information that they need.
Learn from your mistakes, find out where exactly you went wrong. It’s common to learn too little from failure, but also possible to learn too much. Do post-mortems on successes too. Success doesn’t mean you were right. Better yet, engage in “pre-mortems” while you’re still in the middle of the forecasting process. With pre-mortems, try to imagine you are in the future wondering how you could have been so wrong.
Create a great forecasting team! Call upon individuals that can bring real value to the work you are doing. Make your team more than just a random collection of individuals. Embrace a common purpose, that of helping each other get better at forecasting.
Forecasting improves with experience. Reading and understanding this blog article will not be enough. You don’t learn to ride a bicycle by reading physics texts. Learning requires doing, with feedback that leaves no ambiguity about whether you are doing well and the faster the better, especially when those skills are still being developed. Engage in as many forecasting questions as you can to get rapid feedback.
Sage Consultancy offers support to international schools in different aspects of finance and operations, this includes the development of budgets, admissions
forecasts and cash-flows. We not only support in the mechanics of the preparation but also the visualisation and presentation to promote effective management and build trust between school stakeholders.