At this gut-check moment for corporate decision-makers, one tactic to boost their confidence is to demand better cash forecasts from their treasury department. How ironic, then, that the same economic instability that’s producing the angst also works against effective forecasting. Knowing what sales will look like next month or whether the credit markets will thaw soon is, for the moment, uncomfortably elusive.
The irony doesn’t end there. Treasury departments haven’t been exempt from the depletion of human and monetary resources that has plagued almost every corporate function. One solution, the consulting firm Treasury Strategies suggests, is to put faith in the 80/20 rule; that is, 20% of a company’s cash-flow line items are likely to be responsible for 80% of the company’s results. So if treasurers focus strictly on the 20% without wasting precious time and effort on the rest, their forecasts may be pretty accurate, according to John Herrick, a principal of the consultancy. And that may be good enough.
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