Financial Forecasting Is Not Fortune-Telling

Johan Smith

Let’s clear something up right from the start:

“Last year plus X%” is not a forecast. It’s a guess. And guesswork is not a strategy, nor is it management.

Yet that’s exactly how many organizations still approach budgeting and forecasting. They look at what they did last year, tack on a bit of optimism or pessimism, and call it a plan. But real forecasting is not about wishful thinking or crystal balls. It’s about clarity. It's about knowing what you’re doing, why you’re doing it, deciding what you want to do, and what you expect it to deliver.

Anything else? That’s just financial fortune-telling.

What Forecasting Should Really Be

At its core, a forecast is a reflection of your plan of action. Not a wish. Not a hope. Not some expectation. It should be a solid plan.

It should tell you:

• What activities you plan to pursue
• Which activities you're going to stop or scale back
• What those activities are expected to cost
• What return those activities should generate

If your forecast doesn’t answer those questions, what is it really for?

Forecasting isn’t just about numbers on a page, it’s about decision-making. It should help you decide whether to hire, invest, expand, pause, pivot, or push. It should be built on activities and assumptions that you understand, believe in, and can adjust if the world changes around you. And if this sounds like work .. well, that’s because it is! But it’s the kind of work that drives better outcomes.

The Temptation of the Magic Wand

I often hear things like:

“We want the newest forecasting tool, but we don’t have time to do the detail.”

“Why can’t the system just calculate our forecast for us?”

You can have the slickest dashboards, KPI's, AI-powered analytics, and cloud-based systems, but if the input is just “last year plus X%,” all you’re doing is dressing up guesswork in a fancier outfit. A monkey in a suit.

Technology is a lever, not a shortcut. If you’re not willing to look under the hood of your own business, your costs, your drivers, your revenue streams, then no system can give you answers. And no “magic” algorithm will make a forecast more valuable than the logic behind it.

Activity-Based is the Real Deal

So what’s the alternative? Activity-Based Forecasting.

This approach asks:

• What are you actually doing next year?
• How many customers are you targeting?
• How many units are you planning to deliver?
• What are the costs? What are the outcomes?

When you build forecasts based on activities, instead of just historical numbers, you get something powerful: insight and the ability to make decisions. You can spot inefficiencies, identify growth levers, and make trade-offs with confidence.

At XLReporting, we’ve built our platform around that philosophy. We don’t just give you templates, we give you the tools to build models that reflect your reality. You can align budgets with goals, model scenarios, and adapt quickly when plans change. That’s what real forecasting looks like.

Forecasting is Management, not Magic

Let’s stop pretending forecasting is some mystical art. It’s not. It’s a practical, disciplined process that’s essential to running a business well. It’s the map for your route, not the fog in your crystal ball.

So next time someone says, “Just give me the number”, please ask them: "Based on what?"

Because unless you have a solid plan behind that number, you don’t have a forecast. All you have is a fortune cookie.

Curious how XLReporting could help you? Let’s talk.

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