Forecasts Does Not Come Easy

Pre-crisis corporates produced forecasts and ran the business based on relatively stabile conditions. Markets were expected to follow a trend, many times growth rates of the economy. This is no longer true. The trend is not your friend instead you need to be prepared for the unexpected.

The Corporate Plans for 2010 survey, performed by the European Treasurers’ Peer Group and sponsored by NFS Group, clearly indicated that forecasts do not any longer come easy. This force mitigation through making the cost base and capex programs much more flexible and it raises the question how we shall hedge without reliable forecasts. Anyway hedging of forecasts only postpones the effect of market rate changes. An alternative is to increase the price elasticity transferring the FX effects to the customers and vendors earlier. This would be an effective hedge but require that we adjust our business model. Alternatives are to seize hedging other than for confirmed transactions or hedge unreliable forecasts. But these options raise more questions than answers.

But there is seldom something bad that does not give birth to something good. The crisis has forced corporates being much more agile, fast moving and flexible, not only relying on the trend. This is a very good improvement and it also forces the corporate management to treat financial risks as business risks and adjust the business model to cater for them.