The Role of Performance Measures in Predictive Accounting, Part 1
Source: Better Management.com
Predictive accounting seeks to understand the future. It is neither a crystal ball nor the wicked witch's mirror. It is based on the observation that all work comes from repeatable processes. A repeatable process implies that processes show consistent results within a set of conditions. Changed conditions introduce variation into a process and decrease its predictability. By understanding the processes - the commonly observed resource consumption rates and time duration - one can develop statistical probabilities of what financial and non-financial results ought to look like. The projected results are compared with the actual results to validate and, when required, update the process model.