October, November and December in the business world are a wonderful time of year.  Those months mark the time that, for all those companies whose fiscal year is the same as the calendar year, budget planning and forecasting starts and gets into full swing.  Ah yes, budget planning.  Tell us what exactly is going to happen over the next 12 months and you might just get held to it.  We want to believe that budget planning is a very concrete and analytical process.  You put together the business plan for the upcoming year, you look at all the economic forecasts, you apply expected new business growth, you add in expected costs (staffing, marketing, etc), plug in your expected variables, and voila, out comes your budget.  But in some ways, isn’t it more akin to calling Miss Cleo on the psychic hotline to find out what will happen?  You are making those decisions based on what you think is going to happen over the next twelve months.  Be honest, how often does the year go exactly as you planned?  The problem is that for all the variables that you control, there are 2x, 5x or 10x as many that you don’t.  Mergers, acquisitions, loss of business, earthquakes, invasions, the near collapse of the banking industry, heck, even swine flu – sorry have to be politically correct to the pigs, H1N1 – can throw off your plans.  Not all variables have to negatively affect on your business though, but even the positive ones still put you off your established plan.  Is it any wonder that budgets are constantly reviewed and why they get reforecast periodically?  We look back at the quarter, for example, and make the most educated changes for upcoming quarters based on what just happened.

Hindsight is 20/20

Looking back on what has happened is commonly referred to as hindsight. And we all know that hindsight is 20/20.  That is the beauty of hindsight, you already know what happened, and you see how you should have reacted to something versus how you did react.  Remember October, November and December that we were talking about earlier?  Well, we also call them 4th Quarter, and they are notorious, especially December, for recaps and reviews (and “best of” lists for the year).  They are the time when we look at all the things that went right and went wrong during the year.  Why? Because we are starting to plan for the next year and want to learn from what just happened.

We all need to think of ourselves as the weathermen.  They get to present a forecast that is based on weather patterns, high pressure systems, cold fronts, jet streams, etc.  You’ve seen all the fancy equipment they have on the ground and in the air.  All very technical and scientific.  They should be able to nail it every time right?  But a lot of factors do not always show up in their models or do not get caught by the fancy equipment, and that throws off their forecast.   What they are doing though is constantly evaluating and analyzing all the information they receive from the models and equipment.  They recalibrate their forecast with all that information because they are constantly working to hit it right on.  Here is the great part of their job though, they get to come back after the day is over and tell you that a) they got it right or b) there were some unexpected variables that popped up and kept them from getting it totally right and we have to accept that.  In business, we do not usually have that luxury.  We have to try and get it right from the beginning. 

So I will wish you the best of luck when putting together that next forecast.  Remember to look forward and look back, you need them both.  I’ll hope that you get blue sunny skies and a warm day, but just in case, make sure that you plan for any thunderstorms.