December 19, 2007
Survey Finds Reliable Forecasting Key to Improving Profits
Please notice a new change to the blog: on the right hand column there is a poll that asks a question based on a recent blog posting. Please participate - there's a story in the results.
I am also happy to introduce Amy Flaherty as a guest contributor today. Amy, one of Juris' Regional Vice Presidents, is one of our valued colleagues who always scours the internet for articles affecting the legal profession. She came across an article discussing the results of a survey highlighting the need to forecast. I asked if she would reduce her thoughts to writing and she graciously agreed:
KPMG’s recent study, "Forecasting with Confidence: Insights from leading finance functions," highlights the need for more reliable forecasting. The study found that for those companies who actively forecast, only one in five produce one which is reliable. Even so, those 4 others are still more reliable than those who don’t forecast at all.
Although KPMG’s study is not industry specific, the findings can apply to law firms as well as it could any other business. The underlying message is if you want to be able to make better decisions about future direction\growth, you need to take forecasting more seriously.
Here are some highlights and how they relate to law firms:
1. Accurate forecasting enhances value.
Firms with forecasts that came within 5% of actual results saw share prices increase by 46% compared with 34% for others. I believe this is largely due to having the right individuals analyzing accurate data and taking the time to build the forecasts. Doing so will tell you exactly what needs to happen in order to meet your financial objectives. Then you can measure against your actuals to determine whether you are on track to make your forecasted numbers. According to the Juris Law Firm Economic Survey, firms with the highest per-partner income perform well across all key performance metrics.
2. Data integrity is key to producing reliable forecasts.
Firms focus primarily on internally generated data when budgeting and forecasting. They should be using external data as well. You are limiting your analysis if only looking at your own data. Using benchmarking tools like Juris Insight® or the Juris Law Firm Economic Survey will provide you with competitive information needed to analyze numbers and produce more reliable forecasts.
3. Practice of Forecasting.
Respondents pointed to improvement in three main areas to produce more reliable forecasting:
• Automating the forecasting process with technology;
• Scenario planning;
• Rolling forecasts.
Budgeting and forecasting tools will help automate the process of forecasting by pulling in actuals from prior years and tracking prior forecasts. Then firms can test scenarios against actual as well as projected numbers. Rolling forecasts allow you to measure and adjust on a monthly or quarterly basis so that you are not only forecasting on an annual basis, but are consistently measuring your numbers and adjusting your forecasts accordingly.
4. Technology's part in forecasting.
Technology is seen as one of the key tools that could help improve forecasts. However, 40% of respondents rely solely on spreadsheets to produce forecasts. Although there is familiarity and flexibility with spreadsheets, having advanced forecasting software will automate processes and provide more flexibility, creating more reliable forecasts.
Suggestions to create more reliable forecasts:
• Use external market reports and competitive data.
• Update forecasts more frequently (58% do so monthly or more often).
• Make greater use of technology in the forecasting process.
• Hold everyone accountable for their forecasts.
• Require participation across all practice groups.
Amy Flaherty has been with Juris for over 15 years and has been a Regional Vice President for the past 5 years. Before joining Juris, Amy directed the Services and Consulting arm of Legal Works, a software integration company based out of Virginia. Amy received her undergraduate degree in Computer Information Systems from James Madison University.
Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:
877/377-3740, e-mail info@juris.com or go to www.Juris.com.
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Filed under Forecasting, Planning by Brian J. Ritchey
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