The KPMG study of 544 global executives found that 78 percent of the companies surveyed reported forecasting errors of more than 5 percent. 

Although other factors are undoubtedly at play, companies with unreliable and inaccurate forecasting had a six percent drop on average in share price over the past three years, according to the survey findings. Similarly, the survey also found that companies that kept forecast fluctuations below the five percent mark realized a 46 percent rise in share price over the same three-year period, compared to a 34 percent increase among the companies that had more than a five percent margin of error in their forecasts.

"Reliable forecasting is not art over science, and our research found that those companies that take forecasting seriously and work hard at it realize measurable business value over the long-term," said Stephen Lis, head of the Business Performance Services practice at KPMG LLP. "Companies that have greater confidence in their forecasting process demonstrate similar traits -- they apply rigor to the process, use forecasting as a core management tool, and instil forecasting discipline into the culture and day-to-day activity of the organization."   

The survey found a correlation between forecasting accuracy and leading forecasting practices. The most accurate forecasting organizations, as compared to less accurate organizations, more often hold managers accountable for forecasts, use forecasts for ongoing performance management, and incentivize managers for forecast accuracies.

Improve the Process

Executives surveyed also pointed to three major areas where improvements could be made to improve the forecasting process:

• Automation through IT systems and tools (42 percent)
• Scenario planning (42 percent), and, 
• Rolling forecasts (40 percent).

In addition, a third of respondents consider their current technology an impediment to accurate forecasting, with 40 percent of executives saying they rely solely on spreadsheets to produce their forecasts.  

"While getting it right is difficult, CFOs can improve their forecasting ability by bringing together their culture, processes, and internal and external data into a cohesive framework," Lis added. "Increasing forecasting accuracy should not only improve investor confidence, but it can be a useful tool in strategy setting and performance management. Executives who can imbed a forecasting discipline into the culture of their organization will see that this can be a key management tool."                 

The KPMG "Forecasting with Confidence" survey, conducted by the Economist Intelligence Unit, was based on surveys of more than 540 senior executives involved in the forecasting process, more than 30 percent of whom were CFOs. Fifty-nine percent of survey respondents were from organizations with more than $1 billion in annual revenues, from a cross-section of industries.