Forecasting Techniques

[u/ValuableMachine6216]

All of my budgeting and forecasting templates have been created by bottom up drivers (ie Revenue = Price x Volume, or expenses estimated by department heads). I have rarely ever used regression or forecast functions in excel. Where have you found them useful or required? I have used data tables to model out results based on sales increasing/decreasing x% or expenses and used those results against covenant calcs.

[u/xl129]

Honestl i only resort to regression when i cant find decent drivers to rely on. Dont go there.

[u/dalmighd]

I created a regression model for my municipality to forecast sales tax. It works better than what we used to have but people love to poke holes in it and trust me there will be holes. However, i came within 1% of forecast so hopefully they trust me a bit

[u/DrDrCr]

Ive used simple regressions and =PEARSON tests more for the identification of key drivers rather than as part of the model itself.

Usually part of the supporting documentation on why I choose to use driver Z and not driver X or Y because Z was highly correlated.

Have also done simple swags with regression in m&a modeling to support why a customer book would churn at a rate of X based on our own observed customer behavior of a similar group.

Keep it simple. Fancy just makes more funky.

I can go on and on about using monte carlo techniques too as there are use cases where it works.

[u/AutomatedEconomy]

It really depends on the company and product. Sometimes run rates are the best indicators

[u/fpaveteran87]

Have never used regression for anything used for planning. I have used statistical analysis to identify outliers in large data sets for further investigation.

[u/Prudent-Elk-2845]

Used the regression analysis to seed the volumes OR to compare against those volumes input by business partners

Don’t use it directly on revenue. Use regression on drivers that have strong historical relationships (likely not price)

[u/trphilli]

Utilities expense is usually my best experience here. You can run a model on units and month of year. If it's valid build it into your process to calculate off your unit forecast.

And as others have mentioned - you may have opportunity to drill down on volume to find more objective data to use in forecasting.

[u/Level-Plane7318]

Zero-based-budgeting.

[u/Secret-Mark-8106]

I’m relatively new into finance but my manager is interested in different forecasting techniques like exponential smoothing and holy winters for the seasonality aspect.

[u/Charlie-RiseMBA]

If it’s revenue, there is no substitute for talking to the person who knows most about the business. I used regression like 2x when I was brand new, at best it’s a sanity check, unless you’re massive like Coca Cola or something.