When you drive do you look to the front or to the rear? Most people look forward with the occasional glance in the rear-view mirror. Yet in business we spend most of our time looking at history, in the form of management accounts, rather than anticipating what is going to happen.
Forecasting is an important practice that when done properly can help you anticipate and prepare for future changes to your business.You cannot always anticipate changes; the crash of 2008 is one example. However, smart companies look at the market and where it is going in order to make sure they are doing business in the right places.
To be effective it is not good enough to just look at the figures published by the CPA or Experian; you need to understand how individual sections of the market will impact your business.
For example, you might have more success with projects in retail than in education. So although spending on education is expected to increase in the next couple of years, a small rise in retail activity might have much more impact on your business.
Set a mark
Forecasting is also important in providing a benchmark of your own performance. As construction activity increases, you might see a 3 per cent increase in your business. Is this good or bad?
If the market has grown by just 2 per cent it is very good. But if the market has increased by 5 per cent then you are losing share and missing opportunities. Suddenly that 3 per cent increase does not look so good.
Firstly you need a reliable forecast which breaks the market down into sectors that are relevant to your business. There are several for the construction sector.
These are developed by panels with good industry experience backed up by data on planned government expenditure, stated intentions of the larger private companies and feedback from the market.
Then you need to understand your own business. For each sector, what proportion of projects have a need for your services? For each project, what business value does it represent to you?
Combine all of this information and you can start to create a forecast for your own business: a business that is much more specific than just overall market activity and will help you to plan your own resources.
It will identify the best opportunities for your business and allow you to develop a strategy to take advantage of the opportunities.
Then you can start to plan your resources to take advantages of the expected increase in the market and the inevitable changes to the nature and structure of the market.
First published by CIMCIG November 2013.
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