Roughly Right vs. Precisely Wrong: Building Financial Projections That Work

Financial forecasting is a critical part of business planning. Whether you’re a business owner, CFO, or financial advisor, your ability to project future performance influences strategic decisions, budgeting, and resource allocation. However, not all forecasting approaches are created equal. Some financial professionals take the "roughly right" approach, while others pursue a "precisely wrong" methodology.

The difference? The "roughly right" approach focuses on identifying key drivers and big-picture trends to create an actionable forecast. The "precisely wrong" method, on the other hand, aims for extreme precision—often at the cost of efficiency and usefulness. In this article, we’ll explore these two perspectives and argue why "roughly right" is the better approach to forecasting.

Defining the Two Approaches

The "Roughly Right" Approach

• Focuses on big-picture drivers of financial performance rather than unnecessary details.
• Uses key assumptions and industry benchmarks to create a practical and realistic forecast.
• Accepts that forecasts are imperfect by nature but still valuable for decision-making.
• Enables faster, more strategic responses to changes in business conditions.

The "Precisely Wrong" Approach

• Seeks to perfectly model every financial detail, down to the smallest line item.
• Consumes excessive time and resources on marginal details that have minimal impact on overall projections.
• Creates a false sense of accuracy, leading decision-makers to believe forecasts are more reliable than they actually are.
• Often results in forecasts that are outdated before they’re even finalized because business conditions shift.
  

The Case for "Roughly Right" Forecasting

Why Perfection Is the Enemy of Progress

Financial projections are inherently uncertain. Markets fluctuate, customer behaviors change, and economic conditions evolve. Spending excessive time perfecting a forecast does not make it more accurate—it simply delays decision-making. A "roughly right" approach acknowledges this uncertainty and prioritizes adaptability over rigid precision.

How to Build a Practical, Actionable Forecast

A well-crafted forecast doesn’t need to be perfect; it needs to be useful. Here’s how to build one:

• Use industry benchmarks to ground projections in a broader market reality.
• Analyze year-over-year trends to identify patterns in revenue, costs, and profitability.
• Incorporate leadership’s expectations to align forecasts with strategic goals.
• Identify the key drivers of the business and focus on projecting those accurately rather than worrying about every small account.

By following these steps, businesses can create projections that provide real insights without getting lost in unnecessary details.

The Benefits of a Big-Picture Forecast

A "roughly right" forecast offers several advantages:

• Faster decision-making – Leaders can respond quickly to financial insights instead of waiting for a "perfect" forecast.
• Better resource allocation – Time and energy are spent analyzing meaningful trends rather than perfecting trivial details.
• More strategic insights – By focusing on the big picture, leadership can plan effectively for growth and change.

Conclusion

Financial forecasting is not about achieving perfection—it’s about making informed, strategic decisions. The "roughly right" approach prioritizes efficiency and actionability over time-consuming precision, ensuring that businesses can adapt and respond to changing conditions. Instead of getting bogged down in unnecessary details, focus on the key drivers that truly influence financial performance.

How do you approach financial forecasting in your business? Do you aim for "roughly right," or do you find yourself caught in the "precisely wrong" trap? Share your thoughts in the comments!