Forecast Accuracy
Percentage deviation of the financial forecast from actual results, measuring planning quality
What is Forecast Accuracy?
Forecast accuracy in finance measures how far a financial forecast was from what actually happened, as a percentage of the actual result. It shows how reliable the organisation's forecasting is.
Better forecasts lead to better decisions on spending, hiring and cash, so improving accuracy has wide benefits.
How this KPI is measured
- Function
- Finance
- Sub-function
- Budgeting & Forecasting
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (|Forecast − Actual| / Actual) × 100
How to calculate it
Take the absolute difference between the forecast and the actual result, divide by the actual result, and multiply by 100.
For example, if the forecast was 9,500,000 and actual was 10,000,000, the error is |9,500,000 - 10,000,000| / 10,000,000 x 100 = 5%.
Lower is better. Using the absolute value means over- and under-forecasts both count as errors. Measure at the same point in the cycle each time.
Where it is used
Improving planning
Make forecasts more reliable.
Building trust in numbers
Show leadership reliable forecasts.
Comparing methods
Test forecasting approaches.
How to improve it
Tips and common mistakes
- Watch for consistent bias in one direction.
- Accuracy is lower for volatile items.
- Do not sandbag forecasts to look accurate.
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