5 Ways Business Intelligence Transforms Your Company by Amanda Harley, MBA–Part 4
#2 – Using Business Intelligence to Forecast the Future
In the last post on how Business Intelligence Transforms Your Business, I discussed using Business Intelligence to assess concentration risks within the business. Now, let’s assemble all of the previously discussed ways Business Intelligence Transforms Your Business and use these applications to craft what the future looks like for your business. By now, you know that a BI system can reveal hidden potential, uncover buried profits, and expose concentration risks within your business today. But, a critical element of BI is that it allows you to quickly spot trends over time.
Longitudinal analysis—monitoring changes over time and their repercussions throughout the business—helps you see what is coming next. For example, thoroughly understanding the activity levels of your products, customers, and profits helps you to then forecast demands for future cash requirements, inventories, and workforce allocations.
Using BI to forecast is often underutilized in small businesses, generally due to unfamiliarity with how to develop an accurate forecast. But, BI actually takes the guesswork out of forecasting. Think about it this way: you already know what your customers historically buy, when they buy, how much they buy, and at what margins they buy. There are two ways to develop a forecast: bottom up and top down. Bottom up forecasting involves analyzing the sales activity and seasonality over time of specific customers and products in order to project future sales activity by customer and/or product. A top down approach is simply taking the aggregate of sales activity over time and projecting future activity and margins based on current seasonality trends. With a Business Intelligence System in place, you have all of this information at your fingertips no matter which approach you choose to implement. Use your BI system in conjunction with future growth expectations and expansion plans to develop a fully integrated and intelligent forecast. When possible, experiment with different growth rates—“what-if scenarios”—so your forecast is robust enough to handle any contingencies that come your way.
Next week, I’m excited to share the #1 Way Business Intelligence Transforms Your Business. Stay tuned…