Step One: Discover the Needs of Your Business A financial forecast is vital to the success of any organization as it will influence the planning stages and decision making within your business. In order to understand the needs of your business, there are some questions you need to ask of yourself such as, What future decisions might your forecast change or impact? Who will be affected by these decisions? How much detail should you provide in your forecast and what tools will help others understand the data? What time frame should your financial forecast report cover: weeks, months, quarters or even years? What methods will be used to ensure accuracy, and what margin of error will be acceptable? Finally, and probably the most important, what would be the impact upon your business due to under or overcasting in your report.

Step Two: Getting Key Data for the Forecast Knowing what data you need to gather and how many years you should go back is essential to creating a clear and accurate picture of your business’s financial history. If you are only going to estimate a short distance in the future, less data can be used, however the general rule is to have at least two to five years of historical data for a proper forecast. You should enlist the assistance of all data sources at your disposal in order to create the most in-depth data sets, including spreadsheets, databases from various departments, multiple healthcare data systems and enterprise data warehouse, if available, should be used. The more areas you gather your resources from, the more variations in behavior within the organization can be used to help you paint a full picture of the data at hand.

Step Three: Design a Forecast Model to Suit Your Needs You will now need to decide what type of forecasting model to use based upon the unique contributing factors of historical data, business need and other influencing factors that you have established up to this point. The model you choose is essential to your final presentation because the technique or algorithm that you ultimately use will help to support and determine your projections. The three major forecasting categories that you should focus on and deliver are cause-and-effect, judgment and time series. In order to choose the best model for your particular organization, it may be a good idea to consult with an expert for advice on which type to use.

Step Four: Assess Your Results You should utilize the most recent time period from your gathered historical data to create the model of your financial forecast. The accuracy of your overall forecast model should be measured using the gathered statistical functions.

Step Five: Assign the Data to the Model By the time you plug in all the data and create a forecast, you should have a complete picture to share with everyone concerned in a way that they will be able to use effectively. Ideally, you should be able to tailor your financial forecast for each business area within your organization and re-package it appropriately for each user’s needs.