What Is Forecast?

Financial forecasting is one of the most critical functions in FP&A. While budgets set targets, forecasts predict what will actually happen. A well-constructed forecast helps leadership make informed decisions about hiring, investment, and resource allocation by providing the most up-to-date view of where the business is heading.

Forecasts can be built using various methodologies. Quantitative methods include time-series analysis, regression modelling, and moving averages. Qualitative methods rely on expert judgement, market research, and scenario planning. Most FP&A teams use a blend of both, anchoring projections in historical data while layering in known future events.

The frequency of forecasting varies by organisation. Some update monthly, while others maintain a continuous rolling forecast that always looks twelve to eighteen months ahead. Rolling forecasts have gained popularity because they eliminate the artificial boundary of the fiscal year and provide a constantly refreshed planning horizon.

Accuracy is paramount but rarely perfect. Best-practice FP&A teams track forecast accuracy over time, measure bias (consistently over- or under-forecasting), and refine their models accordingly. Key accuracy metrics include Mean Absolute Percentage Error (MAPE) and tracking signal.

For UK companies, forecasts should incorporate known regulatory changes, tax deadlines (corporation tax, quarterly VAT returns), and seasonal patterns. Currency exposure for businesses with international operations adds another layer of complexity that modern FP&A platforms can help manage.

For a practical overview of the rolling approach, see what is a rolling forecast or the comparison post Rolling Forecasts vs Static Budgets. Download the rolling forecast template to get started, or explore the revenue forecast template for revenue-specific projections. To measure and improve prediction quality, read how to measure and improve forecast accuracy.