Jerry Scherer

Multiple Risks

Suppose your company is making an investment in a foreign location. You have prepared a 10-Year Net Present Value Analysis and the suggested decision of that analysis is to proceed. There is certainly risk associated with your forecast of Base Sales, Growth Rate, Direct and Indirect Costs, as well as Inflation and Discount Rates. But, those are only the tip of the iceberg when you think about all of the possible things that could go wrong over such a lengthy period. How do you increase your comfort level? Let’s see what a Risk Register can do for you.

Forecasting Technology Today

Industry leaders as well as the Financial Planning and Analysis community must keep abreast of technological advancements in the area of forecasting and strategic planning. It is vital that appropriate tools are utilized in today’s uncertain economic environment. The good news is that there are excellent, powerful tools in existence. Although Artificial Intelligence may provide even further advancements in the future, those advancements are not here yet for general use.

Let’s look at the questions of why companies should forecast and what is the best method

Decision making is complex. It involves knowledge of the factors that will impact and be impacted by the decision. It involves organized thought. It involves repression of biases, overconfidence, and other impediments that will influence the decision. It involves collaboration with other members of the management team having expertise that will be crucial to the decision.

The process itself will give rise to insights not heretofore considered.

The process, if done well, will silence the loudest voice in the room and lead to a carefully thought out decision.

Let us examine how technology can make such an outcome possible.

How Do You Anticipate Surprises?

Should’ve, would’ve, could’ve, might’ve! These are words that might be heard in a board room during a post-mortem on a flawed decision. Executives berating themselves for failing to consider all the possible alternatives.

They did their SWOT analysis. They engaged in a collaborative way and sought input from all levels of the organization. Yet, their final decision was flawed. There was a surprise that they failed to consider. How could they have contemplated that surprise or, for that matter, the likelihood of any surprise?

More than 250 years ago the Reverend Thomas Bayes first provided an equation that allows new evidence to update beliefs in his An Essay towards solving a Problem in the Doctrine of Chances (1763).

Let’s examine how the surprise could have been anticipated using Bayesian theorem.

Is A GAAP Income Statement the Best Way to Manage Your Business?

Clearly GAAP statements are an important and necessary part of reporting for regulatory bodies (the SEC) as well as stockholders. But are they the best way to manage your business? I submit that there may be alternative presentations of both the statements themselves as well as the metrics which may be derived therefrom which may be more useful and provide managers with different insights. This article will examine whether a Direct-Basis Income Statement and attendant metrics might just offer another approach.