• Algorithmically Derived Forecasts Provide a Stronger Foundation for Forward-Looking Financial Steering, Says Daimler Mobility-BCG Report
• Daimler Mobility Taps into the Power of Algorithmic Forecasting
Daimler Mobility has deployed an enriched, forward-looking approach to financial steering that helps it more effectively adjust to the ever-increasing levels of uncertainty in today’s business environment. The approach defines course corrections by analyzing algorithmically derived forecasts of the way key metrics will evolve over specific time horizons. Armed with foresight into how conditions will change, the company can take action to preempt unfavorable outcomes and promote competitive advantage. Daimler Mobility and Boston Consulting Group (BCG) discuss the model in a report, The Power of Algorithmic Forecasting, released on 5th December 2019. The report is the first installment in a series titled “The Art of Forward-Looking Steering.”
Technology has enabled forward-looking steering in ways that were not possible even a few years ago. By automating and digitizing its forecasting processes, Daimler Mobility can rapidly generate forecasts about the future development of the most important factors influencing performance. The forecasts provide early guidance on the likely development of KPIs under different scenarios and on the impact these changes will have on future results. Decision makers can use this foresight to assess the attractiveness of alternative pathways that the company might take. As a result, they can make decisions to exploit opportunities and avoid adverse developments much faster than in the past.
To master the digital transformation, a company must take a comprehensive approach to algorithm-based forward-looking steering, said Stephan Unger, Daimler Mobility’s chief financial officer. This includes not only advanced analytical methods, new technologies, and the right expertise, but also an engaging approach to change management.
Daimler Mobility’s algorithmically generated forecasts predict performance for the next 18 months for more than 50 business entities, each with approximately 100 KPIs. In 70% of its predictions, the statistical forecast has proved to be the same as or more accurate than experts’ judgment—and it achieved these results faster and with far less effort than the experts did.
This success comes from a forecasting engine managed by data scientists in collaboration with business controllers and IT experts, as well as from a rigorously designed and executed transformation, said Marc Rodt, a BCG partner, member of the firm’s Center for CFO Excellence, and report coauthor. The effort has yielded foresight that enables the company to shape the future by preempting negative outcomes and exploiting new opportunities.
Adopting an algorithm-based forward-looking steering model is not easy. Among the many challenges involved are assembling a team that has statistical capabilities, setting up a new technical infrastructure, and building people’s trust in technology. In subsequent publications in this series, as well as in a video presentation, Daimler Mobility and BCG will discuss how to meet those challenges.
A copy of the report can be downloaded here.
