Forecasting - a waste of time or worth some effort?

With Tesco now revising its forecast profits down from the original £2.8bn to £1.4bn you might wonder. This is despite armies of accountants spending millions on this task. So how could it happen and why bother?

Part of the how it happened is the small amount of £263 million overstatement of profit which has been described as 'dubious bookkeeping' and 'a bookkeeping scandal'. That's an insult to the bookkeepers, although I'm not sure that's the correct term for their computer systems behind everything. More like high level dodgy manipulation, judging by the Serious Fraud Office investigation.

Why bother? The only purpose of forecasting is to provide a benefit otherwise it really is a waste of time. Other than for the stock exchange the reasons are broadly as a target or as a control. If you don't set targets then it's a lot more difficult to judge results. The control part is relevant when you could be heading towards difficulty, especially cash flow problems.

It's worth reviewing existing forecasting for cost benefit checking and where there's no forecasting it's worth an external person advising on its value. But don't get it as wrong as Tesco because that really would be failure.

The best antidote to 'misleading' information is independence - that's one of the key benefits of outsourcing. With Tesco that's down to the auditors but that's another story.

Anthony Pilkington, Managing Director, BookCheck Ltd

This entry was posted in Business Development and tagged in Forecasting, Business Intelligence, Bookkeeping by bookchadmin