Historical Averages

You can forecast an account based on its historical average. Strategic Finance calculates the historical average of that account and apply it to all forecast periods.

For example, for three historical periods in a file, the respective sales were 100, 110, and 121. If the forecast periods, you want to forecast sales as a historical growth rate. Strategic Finance calculates historical growth rates to apply to forecast periods. Without data input, Strategic Finance grows sales at 10% in all periods.

This is a dynamic forecast method. If you changed one of the historical years, recalculating the file would change the sales forecast by applying the new historical average. If you changed the amount of historical years, recalculating the file would change data dependent on the historical average.

The number of years for the historical average is determined through the Time dialog, where you set the amount of years for the historical average. In the case of growth rates, you must select three years of history to get two growth rates. The other place to determine the amount of time to use for the historical average is the Account Status & Groupings Dialog. The Historical Average tab enables you to determine, for each account, how many periods to use in calculating the historical average.

The historical average calculation is a weighted calculation. Say, for example, you forecast Cost of Goods Sold as a historical average percentage of Sales. You have two years of historical data as follows:

Sales

100

200

COGS

70

110

The historical average calculation sum all the sales values and COGS values and calculate the percentage. In this case, 180 (70 + 110) divided by 300 (100 + 200) would yield a historical average percentage of 60. The alternative is to calculate the percentage in each period and take the historical average of the percentages. Doing that here would return a historical average percentage of 62.5. Weighting is a superior method of calculation.