February 12, 2008

Hackett: Despite Prospect of Harsh Punishment by Wall Street, Most Companies Fail When Forecasting Earnings and Sales

ATLANTA & LONDON, February 12, 2008 - Despite a market environment where missed earnings projections can lead to sharp stock declines, CFO firings, or worse, most companies fail to accurately forecast earnings and sales, according to new research by The Hackett Group (NASDAQ: HCKT), a global strategic advisory firm.

According to results from Hackett's new Book of Numbers™ research "Aligning Forecasting Practices with Market Dynamics," two out of every three companies are unable to accurately forecast earnings for the next quarter, missing the mark by anywhere from 6% to over 30%. Companies do only slightly better when forecasting sales, according to Hackett's research. More than half of the companies in the study were unable to accurately forecast sales for the next quarter. Accurate forecasts, for the Hackett study, are defined as being within 5%of actual results.

In addition, forecasting is becoming significantly more challenging, the Hackett research found. 14% of all companies in the study characterized themselves as high risk/high volatility, a seven-fold increase over just three years ago. And Hackett believes this is likely to continue to increase, perhaps by nearly 50% over the next two years.

"It's shocking to see this level of poor performance in such a key area," said Fritz Roemer, who leads Hackett's Enterprise Performance Management Executive Advisory Program. "We've seen companies take severe hits in the past few years after missing forecasts. Analysts suddenly question the competence of senior leadership. Stock prices become unstable and valuations drop dramatically. In some cases, CFOs have had to resign. Yet companies still refuse to make the necessary efforts to get this area under control."

Hackett's Book of Numbers™ research outlines an array of ways world-class companies improve the forecasting process. Hackett recommends that most companies move from year-end to rolling forecasts, which enable companies to more accurately match forecasting horizons to the reality of turbulent market dynamics. Today, only about a third of all companies utilize rolling forecasts, and that percentage has not changed significantly since 2004. Hackett also recommends that companies consider business risk and volatility when determining forecasting frequencies and horizons. While a company in a low-risk, low-volatility environment might manage with a six to eight quarter rolling forecast updated twice per year, a company that sees its environment as high-risk, high-volatility might find a rolling forecast updated monthly to be more appropriate.

Hackett's research also strongly recommends that companies set accuracy targets for forecasting. While the majority of companies measure forecast accuracy, Hackett's research showed that only 20% currently maintain accuracy targets. Finally, Hackett found that leading companies manage forecasting accuracy by making the forecast bias transparent and successfully changing the behavior of forecasters.

"These are very basic steps that almost any company can use to significantly improve their forecasting," said Hackett Finance Practice Leader, Global Advisory Programs Bryan Hall. "By using rolling forecasts, which force companies to look beyond the artificial horizon of their year-end, by considering risk and volatility, and by measuring accuracy in forecasting, companies can make real improvements in this key area, and reap rewards from the investment community."

Hackett's Forecasting Book of Numbers™ research analyzed results from more than 70 large U.S. and European companies. All of the participants operate globally. The research volume, which is available exclusively to members of Hackett's Enterprise Performance Management and Finance Executive Advisory Programs, looks at five key perspectives on forecasting: Aligning Horizons and Frequency with Market Dynamics; Disentangling Forecasting from Budgeting and Management Reporting; Creating a Rolling Forecast that Works; Improving the Forecasting Process; and Creating Accurate Financial Forecasts. It includes case histories describing the efforts of several companies to achieve world-class performance in forecasting, and also offers nearly 50 charts detailing Hackett research metrics in this area.

About The Hackett Group

The Hackett Group (NASDAQ: HCKT), a global strategic advisory firm, is a leader in best practice advisory, benchmarking, and transformation consulting services including shared services, offshoring, and outsourcing advice. Utilizing best practices and implementation insights from more than 4,000 benchmarking engagements, executives use Hackett's empirically based approach to quickly define and prioritize initiatives to enable world-class performance. Through its REL division, Hackett offers working capital solutions focused on delivering significant cash flow improvements across business operations. Through its Hackett Technology Solutions Group, Hackett offers business application consulting services that helps maximize returns on IT investments. Hackett has worked with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune 100, 73% of the DAX, and 45% of the FTSE.

Founded in 1991, The Hackett Group was acquired in 1997 by Answerthink which was renamed The Hackett Group in 2008. The Hackett Group has global offices in the United States, Europe and India.

Media Relations

Media relations inquiries about The Hackett Group should be directed to Gary Baker, Communications Director at gbaker@thehackettgroup.com or +1 917 796 2391.