KPMG

KPMG

November 21, 2007 08:00 ET

Only One in Five Companies Produce a Reliable Forecast, Despite Investing Significant Time, says KPMG Study

Executives estimate that inaccurate forecasts have cut their share price by six per cent over three years

TORONTO, ONTARIO--(Marketwire - Nov. 21, 2007) -

Attention: Business Editors and Reporters

All organizations use forecasts to predict and manage their future performance yet only 22 percent came within five per cent of their projections, according to the results of a global study initiated by KPMG LLP.

The research study, entitled: Forecasting with Confidence, was conducted by the Economist Intelligence Unit (EIU) on behalf of KPMG International and was based on the replies of 544 senior executives, 30 per cent of them Chief Financial Officers. Respondents were drawn from a cross section of industries and 59 percent were from organizations with over US$1 billion in annual revenue.

The study shows that unreliable forecasts cost organizations money. On average forecasts over the last three years have been out by 13 per cent. Executives in the survey estimate that such errors have directly knocked six per cent off their share prices over the same period, mainly because of investor reaction.

"Earlier research by KPMG had already told us that CFO's were unhappy with their current forecasting capabilities," said John Herhalt, Practice Leader, Operations Improvement, KPMG Advisory Services. "By digging deeper in to this critical finance function, we see very clearly that those companies that do meet forecasting targets are high performing companies able to make better decisions about their future. It is obvious that good forecasting pays."

Highlights from the study include:

- Firms with forecasts that came within five percent actual saw share prices increase by 46 per cent over the last three years, compared with 34 per cent for others

- Despite the fact that leaders demand accurate forecasting, companies are much more likely to outperform rather than under perform their predictions. Possible reasons run from "sandbagging" to protecting bonuses

- Outperforming the forecast means that important decisions such as resourcing and investment choices are being made on the basis of inaccurate or incomplete information

- Almost 50 per cent of companies surveyed believe the reliability of their financial data for forecasting is merely adequate or worse; a majority think the same of their non-financial data

- Organizations largely use internally generated data - only 40 percent use government economic reports. Two out of the four areas where companies say they make forecasting errors are consumer demand and economic drivers - both of which could be helped by readily available external data

- Information technology is too often a hindrance not a help

"What emerges clearly from this study is that high-performing companies usually take the forecasting process very seriously," said Stephen Spooner, Western Practice Leader, KPMG Advisory Services. "Armed with better quality, forward-looking information, executives at these organizations are able to make better decisions about the future direction of their business."

About the Research

KPMG commissioned the Economist Intelligence Unit (EIU) to conduct a global survey of 544 senior executives, 30 per cent of whom were Chief Financial Officers. The survey covered a cross-section of industries and 51 per cent of respondents were from organizations with over US$1 Billion dollars in annual revenues. To supplement the survey, EIU conducted a program of interviews with senior executives, as well as academics and experts in the field.
To download a copy of the report please go to www.kpmg.ca.

About KPMG

KPMG LLP, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm affiliated with KPMG International, a global network of professional firms providing Audit, Tax, and Advisory services. Member firms operate in 148 countries and have more than 113,000 professionals working around the world.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

KPMG's Canadian Advisory practice offers an integrated suite of services for companies embarking on complex change projects. The practice delivers objective, independent advice focused on Growth, Governance and Performance. In the Performance area we analyze the four dimensions of business change - people, processes, technology and risk - to identify the areas where there appear to be problems that prevent the business from achieving its objectives. We then devise and execute action plans to create value and sustainable business improvement.

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