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Book Review: Future Ready: How to Master Business Forecasting, by Steve Morlidge and Steve Player
Delaney Turner 270002T14M firstname.lastname@example.org | | Tags:  innovation_center forecasting cfo budgeting finance
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Today's feature is a review of the new business book, Future Ready: How to Master Business Forecasting, by Steve Morlidge and Steve Player. Steve Morlidge was a presenter at the just-concluded IBM Cognos Virtual Finance Forum. Steve Player serves as an advisor to the IBM Cognos Innovation Center for Performance Management.
Better forecasting has been identified as a top priority for CFOs and their finance teams in survey after survey for several years now.1 And with the frequent spectacle of corporate “worst case scenarios” being wildly exceeded by events in the last two years, the critical importance of forecasting is now painfully obvious.
All of which makes this a very opportune time for the publication of Future Ready: How to Master Business Forecasting.2
In this lively and entertaining book, authors Steve Morlidge and Steve Player ask—and answer—some of the most basic theoretical and practical questions about business forecasting. They describe its uses and limitations as practiced in business today, and offer a series common sense strategies to not only make forecasting work better but to help the practitioners of this not-well-understood discipline achieve a level of mastery.
The authors bring decades of combined experience to their subject. Steve Morlidge spent 25 years in corporate finance, including nine as the Financial Controller at a large business unit of Anglo-Dutch consumer products giant Unilever. Steve Player has had a long career in accounting and business finance, and now serves as program director for the Beyond Budgeting Round Table in North America, in addition to his work as a much sought after speaker and consultant on performance management.
The characteristics of good forecasts
In Future Ready, these two authors address foundational questions about the characteristics of good forecasts: How frequent should they be? What level of detail should they contain? And who should be involved in the process? In providing the answers, or rather, in showing how organizations can find their own answers, the authors offer fascinating insights and observations on the behavior of forecasters, their organizations and their customers. They bring psychology, statistics, and systems theory into the mix, and include some illuminating history lessons about the origins of management practice in the 1920s.
They present their main recommendations in six chapters on the “principles of forecast mastery”:
Depth, clarity & intellectual honesty
A good example of the depth, clarity, and intellectual honesty that they bring to these issues can be found in the “Mastering models” chapter, which includes a discussion of bias in forecasting. Rather than simply alerting us to the dangers of bias and admonishing us to avoid it, they provide a lucid description of the “three main sources of behavioral bias… cognitive, social and motivational.” They explain the psychology behind each type of bias, then offer practical approaches to dealing with bias and minimizing its negative effects.
One of these approaches involves making forecasting a collaborative endeavor. They observe that, “forecasting often involves many parts of an organization’s activities, so it is unlikely that any one person will have the requisite knowledge… [T]the process of collaboration increases understanding and promotes buy in, increasing the chances that the forecast is acted upon, and that any deviation from the forecast is spotted quickly.” But even as they highlight the benefits of collaboration, the authors caution against “groupthink” situations where participants “get along by going along.”
To strike a balance, they urge forecasters to acknowledge that bias is always with us, but to “be aware of the pitfalls and design and run the process in a way that promotes evidence over opinion, surfaces dissent and discourages blind conformity.” They add, “making dissenting views visible in this fashion legitimizes dissent in a constructive way as well as enhancing the organization’s ‘situational awareness.’” Future Ready is full of pithy insights like that.
Putting forecasts to use
Implicit in every business forecast is the understanding that the forecast will remain valid only as long as its assumptions remain unchanged. If costs rise or sales fall, the forecast profit figure will necessarily change too.
Thus, one of their axioms, stated early on, is that “in order for forecasts to be useful, we have to be able to act upon them.” So, just as important as a good forecasting process is having a flexible planning and performance management process that allows the business to respond and reallocate resources quickly. It should come as no surprise to readers of Performance Perspectives that one of the most stubborn obstacles to making business responsive is the fixed annual budget, “the tool that, for nearly 100 years, has been the default management process.”
The issue of budgets, comes up frequently in Future Ready. And while they don’t expect to see traditional budgeting abandoned en masse any time soon, they do offer ways to forecast and manage the business more effectively in spite of it. In the penultimate chapter they outline the principles that underlie the Beyond Budgeting management model, the innovative approach to management that is based on relative performance goals rather than fixed targets.
Everyone needs to be “Future Ready”
Future Ready is one of those rare books that appeals to experts and novices alike. It takes a fresh look at the basic assumptions behind established forecasting practices and presents its ideas in clear, engaging language that is mercifully light on jargon. It offers clear definitions of terms along the way, and concludes each chapter with a concise summary and a bulleted list of “Key Learning Points.” It is eminently practical. But like a great college lecture, Future Ready gets its practical points across by taking fascinating detours without ever loosing sight of the destination. The writing is crisp, witty and full of vivid examples and quotes from thinkers ranging from fifth-century BC philosopher Heraclitus to best-selling author Malcolm Gladwell.
Even if your job doesn’t involve forecasting, it no doubt involves decision making at some level, and this book provides an excellent insight into how business decisions—good and bad—are often made. And if nothing else, “some familiarity with the process will make you a better and more discriminating consumer of forecasts.” That’s why Future Ready belongs on your reading list.