A VC: VC Cliche of the Week: If You Must Dorecast, Do It Often
"a couple years ago Matt Blumberg and Jack Sinclair, CEO and CFO (now COO) of Return Path came to the Board with an interesting proposal. They suggested that they develop an annual budget and four quarterly budgets. And they suggested that at the end of each quarter, they develop a new quarterly budget for the next quarter and beyond, which is essentially a reforecast based on what happened in the current quarter. The net of this was that we went to a rolling budget processs where there was a big budgeting effort at year end and a shorter one at the end of each quarter.
If you must forecast, do it often."
An excellent posting by Fred Wilson on the difficulties inherent in financial forecasting. Forecasts can crush a technology company — there have been some famous forecasting debacles when companies have completely misread the market and been woefully undersupplied in the cast of unexpectedly hot products, or overstocked with dogs.
When I was consulting to Gartner I had the pleasure to work with Gartner Fellow, Ken McGee on his book, Head’s Up, an excellent discussion of forecasting that comes to the critical judgment that it is impossible to forecast the future, only to "predict the present." McGee’s advice, similar to Wilson’s, is that frequent assessments are better than impossibly long-distance views over the horizon.