The forecasting of cash flow has long been a staple at many companies. Few people pass through the treasury department of any organization without participating in a cash flow forecast. Nevertheless, the accuracy of these forecasts varies widely.
Many companies' forecasts are developed through arcane processes and disconnected spreadsheets. Putting them together requires a great deal of effort, yet the forecasts' creators lack accountability, and process ownership is unclear. The constant across companies is that treasury professionals generally try to avoid being saddled with this responsibility. Usually, treasury professionals see little upside for coordinating a company's cash flow forecasting efforts, yet they may face the wrath of C-level executives if forecasts are missed or come in late.
For the treasury team—and for the company as a whole—inaccuracies in cash flow forecasts are more costly today than ever before. Because of turbulence in the external economic environment, as well as investors' and analysts' increased interest in corporate cash flows, senior management are paying more attention than ever before to the forecasting process. The treasury department is also under increasing pressure to intervene and make significant process improvements.
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