Is Forecasting Dead?

The current economic upheaval is forcing many credit issuers and their service providers to scramble for better results.

As financial performance wanes, long-term plans are giving way to short-term exigencies. If banks are to change hands, why worry about recovery performance in the future? Given their challenges today, why bother with strategic planning?

In collections and recoveries, a bird in hand is generally worth two in the bush. But is it worth three? Four?

The fundamentals of corporate finance continue to apply, even in these chaotic times. Given the time value of money, a dollar today is worth more than a dollar tomorrow. But even with a high degree of risk, two dollars next week are almost certainly worth more than a dollar today.

This framework has many applications in our world. Should an agency settle in full with a debtor today, or encourage a longer-term payment plan? Should a credit issuer sell debt today or take a more patient approach with contingency agencies? Should a law firm pay for a judgment today in hopes of receiving payments when the economy turns around? These questions should be answered based on thoughtful financial analysis, not based on the daily news.

In this time of sound and fury, let’s not scramble around like chickens with our heads cut off. The future should still inform our decisions today. It may not be perfectly healthy, but forecasting in recoveries is not dead.