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As we wrap up another annual planning cycle, it's time to reflect on the intricate dance of data, intuition, and AI in steering business forecasts through uncertain economic tides. Join me in exploring the lessons learned and the strategies that fueled success in this dynamic journey.
Using data:
Looking back at historical data is like looking at the old hiking tracks. It’s comfortable and easy because we know what happens at every turn. We analyze past sales, customer behavior, and financial performance to uncover valuable trends. By breaking down the data, we can pinpoint areas of success, learn from what didn't go as planned, and establish longer-term patterns. The magic lies in using statistical tools to predict future revenue based on established patterns. FP&A, Analytics, and Data Science teams are very good at building mathematical, predictive, and ML forecasts based on historical data.
Using intuition:
But why should historical performance define our future? It shouldn’t – it can only provide a baseline. Whether it's launching new products, revving up marketing efforts, or forming strategic partnerships, most companies are deliberately working to beat their historical baselines. This is where the creative part of the planning process comes in. We tap into our team's experience and intuition, keeping a keen eye on customer feedback and market dynamics to guide our planning. Here we must rely on less precise and formulaic methods for estimating the impacts of business initiatives and risks.
Using Generative AI
Generative AI can assist in some aspects of revenue planning, but its capabilities and, therefore, possible revenue planning applications are limited. While GenAI can analyze some data and provide insights it is not inherently designed for quantitative data analytics or statistical modeling. We use generative AI to analyze qualitative information, generate textual insights, and assist in communication. It’s important to note that there are several promising innovators in this space, but their solutions aren’t yet mainstream.
Getting it right:
We found that striking the right balance of data and intuition-driven estimates led to more accurate plan targets, better leadership buy-in, and ultimately higher attainment. We follow these five principles to help us find and maintain the right balance throughout the year:
Collaboration: Different teams, from finance to sales, marketing, product, operations, etc. must be accountable for financial results. Joint accountability creates collaboration and collaboration improves forecast quality.
Data: “What is not measured can’t be improved” - W.T. Kelvin. The effectiveness of any business planning process depends on the quality of the data and the relevance of its features to the chosen metrics and KPIs. Ensure that key data sets are correctly defined and carefully managed.
Data-Driven Intuition: For each initiative and business risk, use the collective wisdom of the team to develop a data-driven revenue model. Avoid guessing revenue numbers. Instead, define revenue-driving variables that you can quickly measure (users, transactions, clicks, etc.) and use them to calculate your revenue estimate. Capture all reasoning and numerical assumptions.
Agility: Acknowledge uncertainties and anticipate different outcomes. Agility is more important than precision - keep your logic simple and your assumptions clear so you can revisit your plan often. Monitor revenue-driving metrics and KPIs.
Continue to innovate: Use Generative AI to analyze qualitative information, generate textual insights, and assist in communication. Follow the industry leaders and innovation in this space.
Feel free to share your thoughts and experiences in the comments!
#DataDriven, #DataAnalytics, #GenAI, #RevenuePlanning, #DataManagement, #BusinessStrategy,
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