Chapter 5 - Forecasts Under Fire: Projections

G2G Chapter 5 - Forecasts Under Fire: Projections From Greenhorn to Gold(wo)man

Forecasts Under Fire

Projections & Financial Modelling CHAPTER 5 OF 13 Königshof HQ, Bavaria - Conference Room Le Pitch stands rigid at the head of the table, a thick Excel printout sprawled before him. His model boasts 40 tabs of linked spreadsheets - and not a single clear driver. Haircut flips through the pages with growing impatience. Haircut:"Forty tabs and this still doesn't answer why revenue dips in FY23?" Trace:"There's no driver for sales volume. It's all hardcoded." The room smells of blood. Le Pitch's bloated model is a black box, churning out numbers without logic. That evening, Trace rebuilds it from scratch - 40 tabs reduced to a lean model with real drivers. By 3:00am, Königshof's financial engine is rebuilt - and it actually makes sense. Subtrax HQ, London - Magda's Office Magda's office glows with dual monitors of scrolling code. She's written a custom Python script to project her SaaS startup's growth - 1,000 lines that impress no one but her. Haircut dials in from his fund's boardroom, skim-reads the forecast, and suppresses a smirk. Haircut:"Your churn rate assumption is optimistic at best. You're projecting success on a napkin." Magda:"Our product virality will defy those assumptions." Great product, but leadership = single point of failure? Haircut doesn't push. But later, he scribbles a note: the model's weakness might not be code or market - it might be Magda's pride. Königshof Bank Meeting, Bavaria Wilhelm receives an immaculate 10-year forecast from a keen investment banker. Heavy with graphs and scenarios. He inhales the scent of fresh ink, sets the binder aside, and instead reaches for his fountain pen. He writes three numbers on the back of an envelope - one for revenue, profit, and debt three years ahead.

No elaborate model. No 40 tabs. Just three handwritten numbers. Everyone forecasts differently, and at Königshof the most old-school method still reigns. None of these forecasts have been proven wrong...yet. Core concept The Art of Predicting the Future Financial forecasting is the art of predicting the future with equations. The only certainty is that your forecast will be wrong to some degree. But the goal is to be usefully wrong - to create a forecast engine that is logical, flexible, and understood by everyone in the room. The best forecasts are grounded in real drivers: units sold, price per unit, customer acquisition rates, churn. Not blanket assumptions like "5% annual growth forever." Terminology Driver-Based Forecast A forecast built on underlying business metrics rather than flat percentages. For example, projecting revenue as units sold × price per unit (driver-based) instead of assuming generic 5% growth (static). This ties the model to real operational factors. Why it matters: Every key number has intuition behind it. If you want to know how revenue changes if you sell 10% fewer units, change one driver and watch the cascade. Terminology Hardcoding Entering a number directly into a model rather than deriving it with a formula. E.g., typing 100 as cost every year vs. linking cost to production volume. The danger: Models become brittle. Change one assumption and hardcoded values don't adjust. Often breaks logic. Le Pitch's 40-tab model was a monument to hardcoding - lots of complexity, little clarity. Terminology Black Box Model A financial model that produces outputs without visible logic or transparency. Inputs go in, numbers come out, but it's unclear how.