Two things that will change your approach to forecasting and scenario planning
First, AI. Since 2015, there’s been considerable hype about AI and how it can do your forecasting for you. We’re glad to say that in 2024, the hype finally became a reality (and we’re deploying projects using proven AI-enabled tools).
What’s really exciting in the world of forecasting, though, is the use of AI for correlation detection. In plain language, correlation analysis is a statistical method that measures how closely two variables are related to each other. It helps you to understand the patterns and trends in your financial data (and even external factors) and their impact on your business performance and decisions.
For example, if you are a high-end retailer, you want to ensure you have sufficient stock for the year-end rush at the right stores, but not too much, due to expiration dates and limited storage. However, assuming it will be the same as last year may not be the best strategy. It can be helpful to understand how repeat customers behave and what products are typically bought together, as they can vary by region and store.
But if you’re manually juggling a 20,000-row spreadsheet to uncover patterns from the previous decade of data, best of luck! The good news is that AI will not only identify trends but also spot the correlation between sales to repeat customers and the latest trends in basket analysis. AI could, for example, point out that every time you sold item X to an existing customer during the previous festive seasons, they returned for more the following year. And that items A and C are frequently sold together in Region 1, but items A and D are most commonly sold together in Region 2. So armed with this knowledge, you’re ready to drive sales.
AI can also overlay external information. For instance, if you own a DIY chain, adding weather forecasts to shopfloor planning will ensure you’re well-stocked with BBQs in sunny regions but gutter-clearing gear in another. Thanks to AI, you can finetune your displays and purchasing plans – and boost sales.
Next is using scenario planning to create multiple versions of the future. Then deciding which one you want to work towards.
While you may just want to maintain BAU, your plan may not consider a competitor opening next door, seven key personnel departing, or a legislative change to the number of working (i.e. chargeable) hours. With scenario planning, you can prepare for multiple eventualities.
Scenario planning allows you to factor in those challenges and present a range of viable scenarios to pivot or expand. All invaluable if you’re asking your bank or investors for funding as you can create best, worst and likely case versions to further reduce risk. Like to hire another 200 people? Calculate the onboarding costs, salaries, and extra revenue generated. Targeting a new online market? Predict the value of the opportunity and what you need to make it happen – and the potential ROI to generate further investment.
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