Three forecasting approaches that drive business decisions

In today’s fast-paced business environment, effective forecasting is essential for informed decision-making. So how can you create forecasts that truly drive decisions?

Julio Martínez , Abacum Co-founder and CEO, and Christian Wattig , FP&A Educator, recently joined forces to answer this question. With their combined expertise and extensive experience, Julio and Christian defined three approaches that the best FP&A teams are using:

1. Bottom-up and top-down combined
2. Actionable driver-based forecasting
3. Rolling forecasts with a narrow focus

In this article, we’ll take a look at each approach and how they impact strategic decision-making across the business.

1. Bottom-up and top-down forecasting combined

“The magic happens in that conversation where both of them meet.”

When you combine top-down and bottom-up forecasting, you ensure that your forecasts are both aspirational and grounded in operational realities. For Christian, one of the strongest arguments for combining these forecasting approaches is that each one has its own biases: 

If you consider bottom-up and top-down forecasting to exist at opposite ends of a spectrum, “the magic happens in that conversation where both of them meet,” says Julio. “This is where the FP&A team is really driving better decisions for the company.”

Christian explains: “Most likely, your top down sales forecast will be higher than your bottom up sales forecast, for example. And that’s a fantastic conversation starter, because you can go to the Head of Sales and say, look, we’ve done the top down and arrived at a different conclusion. Why don’t we sit down and compare our assumptions to understand the difference?”

By creating space for conversations that align leadership’s strategic objectives with practical insights from the business teams on the ground, you can prepare forecasts that are realistic and achievable.

2. Actionable driver-based forecasting

“A model that’s easy to maintain, understand, and keep up to date.”

Driver-based forecasting connects financial outcomes directly to key business drivers, allowing for more precise and actionable forecasts...

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