When it comes to forecasting, businesses can be divided into three groups: those that prefer short-term forecasting, such as the 4-8 forecast, those that focus on mid-term forecasting, and those that primarily plan for the long term. And no — we can’t say that one is better than the other.
Read Rolling Forecast – 101 Guide For Smarter Planning
Forecasting techniques mainly depend on various factors. These can include the context of the forecast, historical data, its value, or the time available for making the analysis. But one thing is certain – there are very few decisions finance professionals have to make that don’t involve some kind of forecasting. And every technique has its pros and cons.
In this blog, you’ll find out more about short-term forecasting, better known as a 4-8 forecast. Read about when and why it works, what are its benefits, and how to implement it.
What is the 4-8 Forecast
The 4-8 forecast is a short-term forecasting strategy, focusing on projections for the next 4 to 8 weeks. It’s designed to help businesses stay adaptable in unpredictable times. The reason? It provides regular, short-term insights into financial trends and operational needs. This approach is far from traditional annual or quarterly forecasts, which can quickly become outdated. But it sure does make sense, especially when something unplanned occurs.
Why the 4-8 forecast matters
Remember the COVID-19 pandemic from not so long ago? Anyone planning long-term at that point could throw their forecasts and plans down the drain. The world came to a halt and nothing was certain. Not even if you could go out the next day, let alone anything business-related. This is where short-term planning jumps in.
In times of such uncertainty, businesses need more agility than longer-term forecasting can offer. The pandemic highlighted the need for businesses to pivot quickly and reassess their strategies at frequent intervals. The 4-8 forecast helps CFOs and finance professionals anticipate near-term risks and opportunities, and here are several reasons why:
- It helps make better business decisions. Regular updates enable smarter use of resources, like optimizing cash flow or adjusting investments.
- It improves flexibility. Businesses can react faster to external changes, such as demand shifts, supply chain issues, or economic volatility.
- It builds stakeholder confidence. A quicker approach to forecasting shows investors and employees that the company is actively managing risks.
In fact, according to McKinsey, short-term forecasts, particularly in times of volatility, help CFOs prioritize operational adjustments and guide financial stability strategies.
Benefits of the 4-8 Forecast for CFOs
Focus on liquidity and cash flow
When the going gets tough, businesses need to ensure they have sufficient cash flow. The 4-8 forecast allows CFOs to project cash flow needs and avoid liquidity crises. As PwC notes, short-term forecasts, particularly over the 4-8 week period, give CFOs the clarity needed to make critical cash flow and investment decisions in turbulent times.
Example: Airbnb’s response during the COVID-19 pandemic
When COVID-19 hit in early 2020, the hospitality industry was the first to fall. Airbnb, amongst others, faced a sharp decline in bookings. The company’s leadership knew they had to act quickly to avoid a cash flow crisis since their revenue stream suddenly dried up.
To respond, Airbnb implemented short-term rolling forecasts to assess their immediate financial situation. The company used these forecasts to project cash flow needs on a near-term basis, focusing on what would happen over the next 4-8 weeks. This helped them identify areas where they could cut costs and preserve cash while figuring out ways to generate revenue through new services like “online experiences.”
By focusing on liquidity, they cut $800 million in marketing costs and froze other expenses to ensure they had enough cash to weather the storm. In addition, they raised $2 billion in debt and equity financing to shore up their liquidity position.
All of this allowed Airbnb to maintain enough cash reserves during the worst of the crisis. And, of course, to recover successfully once travel demand picked up later that year.
Scenario planning
Scenario planning is essential when your financial future is uncertain. By updating forecasts regularly within a 4-8 week window, businesses can simulate different outcomes and adjust plans accordingly.
Example: Royal Dutch Shell and scenario planning
Royal Dutch Shell is a company known for its robust scenario planning strategy, particularly in periods of uncertainty. In the 1970s, Shell pioneered the use of scenario planning to prepare for possible futures and adapt its strategies accordingly. During the 2020 oil price crash and a drop in global demand, Shell utilized its scenario planning model to forecast various future outcomes over short- and long-term periods.
By regularly updating their short-term forecasts, Shell simulated multiple scenarios for how the pandemic would affect oil demand, pricing, and supply chains. They modeled outcomes based on different economic recovery rates, changes in global energy demand, and potential regulatory shifts related to climate change. This allowed Shell to adjust its production levels, delay major capital investments, and focus on cash preservation. The 4-8 week forecasting cycles allowed them to make these adjustments frequently, as new information came in regarding the pandemic’s impact on global markets.
Operational agility
The 4-8 forecast gives businesses the ability to pivot quickly in response to internal and external shocks. Whether it’s a change in demand or an economic shift, CFOs can immediately adjust operations, investments, and spending.
Example: Zara’s supply chain management
Zara, a leading fashion retailer, has long used agile operational strategies to respond to rapid changes in consumer demand and external shocks, including during the COVID-19 pandemic.
During the pandemic, Zara relied heavily on short-term forecasting—similar to the 4-8 week forecasting model—to adjust production levels and supply chains in real time. Zara’s ability to react quickly to changes in customer preferences and market conditions allowed them to keep inventories lean and reduce excess stock. By leveraging up-to-date sales and trend data, the company could shift production priorities every few weeks, redirecting resources to high-demand products while minimizing losses on less popular items.
In the early months of the pandemic, when consumer demand for formal clothes declined and the demand for casual and athleisure wear increased, Zara adapted its production cycles to reflect this. This agility allowed them to maintain their financial health while competitors struggled with excess inventory.
How to Implement a 4-8 Forecast
- Use real-time data. To get the most out of a 4-8 forecast, it’s essential to work with real-time data. This includes up-to-date figures on sales, inventory, and other key metrics. Many finance teams are turning to predictive analytics to enhance their forecasting models.
- Involve key stakeholders. Finance professionals should work closely with department heads across the business. Operational managers, marketing leads, and sales teams all bring valuable insights that can improve the accuracy of forecasts.
- Use technology. CFOs can integrate digital tools such as financial modeling software, AI, and cloud-based solutions to streamline the forecasting process. Automated tools can help finance teams gather and analyze data more quickly, freeing up time to focus on high-level decision-making.
Conclusion
The 4-8 forecast is a powerful tool for CFOs and finance professionals who need to navigate uncertainty while keeping their businesses agile and resilient. By focusing on short-term projections, businesses can make better decisions about cash flow, investments, and operations, ensuring they are prepared to face both risks and opportunities head-on.
