3 Tips to Implement Risk-Adjusted Forecasting
There is a lot of buzz being generated around risk-adjusted forecasting—the process of analyzing and incorporating various risks into forecasting and planning.
The 2014 Association for Financial Professionals (AFP) Risk Survey shows that the integration of risk and forecasting is the single largest challenge for companies looking to improve business performance. The idea of complex risk models and flowcharts can be overwhelming and aren't often used in everyday operations.
The AFP Guide to Demystifying Risk-Adjusted Forecasting explains how companies benefit from risk-adjusted forecasting and how teams can transform their finance function to add even more value to the business planning process.
You can successfully integrate risk factors into your financial forecast by evaluating and changing your internal processes. Use these rules of thumb:
Focus on combining FP&A and risk management processes for collecting key finance and risk inputs. This will allow teams to develop shared sets of the data that impact your business the most.
- Improve transparency among risk and management teams
- Drive team collaboration for desired business outcomes
- Collaboration between teams creates a common definition of key risks that affect business the most. This leads to a better understanding of the possible outcomes.
- Streamline the process, and gain quality data insights
- Coordinate FP&A and enterprise risk reporting to management and the board. Improving the quality and consistency of data and analysis will ultimately provide management with the insights needed to carry out better strategic decisions.
Implementing new processes can be challenging, but it benefits companies to make the leap. By exploring technology that coordinates FP&A and risk management, teams are able to become more self-reliant and likely to achieve enterprise-wide objectives.Click here for exclusive insights from Nilly Essaides, Director of Practitioner Content Development at AFP, and Joe Howell, Co-Founder and Managing Director of WebFilings, as they discuss examples of companies currently integrating risk-adjusted forecasting into their planning process.
About the Author
Joseph Howell is the former Vice President, Strategic Initiatives at Workiva. Prior to cofounding Workiva, he served as Chief Financial Officer for a number of public and private companies. He also served as the cofounder, organizer, and community moderator for the SEC Professionals Group.