External Data Sources That Improve Forecasting

Richard Barrett

If business folk who get their forecasts wrong could be prosecuted, I suspect our prisons would be full to overflowing. But this is what happened to six Italian scientists and a government official, who according to prosecutors gave a falsely reassuring statement regarding the risk of an earthquake, just days before the 6.3 magnitude quake hit the city of L’Aquila in 2009 killing 309 people.

Thankfully business folk just have to suffer the wrath of their superiors and their boards when they issue a profit warning. According to Ernst & Young this is something that has been happening much more frequently this last quarter. Their latest profit warnings report showed 68 warnings were issued in the UK – a level not seen since the dark days of 2008.

Most sectors suffered and E&Y comments that it’s been a quarter of exceptional events with a very wet summer, the London Olympics which kept consumer indoors and the expectation that demand would slowly recover rather than the economy head for what looks set to be a ‘triple-dip’ recession.

Interestingly, if you look at the longer term trends, profit warnings are still well below 2008 levels and my guess is that companies have been very conservative with their forecasts and could protect profits with cost cutting. That phase has probably run its course and now companies need to show some revenue growth – and that’s the unfathomable piece they are struggling with.

In writing about exactly this issue, Steve Player encourages smart finance teams not only to harness the power of in-memory processing such as SAP HANA to incorporate ‘Big Data’ such as operational business drivers, but to reach outside the company an access ready stores of insights made available by others.

The examples he lists include demographic data, market data, readily available competitive information and leading economic indicators. What’s more, Steve provides links to some of the sources he recommends including Prevedére Inc. (See  for more details). They claim to “convert ‘Big Data’ into the ‘Right Data’ you need by analyzing over 40,000 data series with millions of records to only the ones that actually affect your profitability.” Now if that’s not data worth leveraging, I don’t know what is.