In any organization the size of the U.S. Postal Service, financial forecasting plays an important role. Accurate forecasting of revenue, volume, and expenses is essential to planning budgets, understanding future cashflows, identifying risk areas, and deciding where to invest capital.
Unfortunately, significant unexpected events can invalidate even the best forecasts. The quick and unforeseen rise of the global pandemic last spring impacted businesses of every size. While the Postal Service experienced yet another dramatic loss in letter and flat volume and revenue, it also it experienced a huge increase in packages. These changes made its previous forecasts unusable. In response to a congressional request, the Postal Service created a new series of revenue and volume forecasts.
In our newly released report, Pandemic Volume and Revenue Projected Scenarios, OIG auditors evaluated the reasonableness of the Postal Service’s projected financial scenarios as a result of the impact of the pandemic.
We found that, in its efforts to produce forecasts quickly, USPS management didn’t always document processes or save supporting materials used for assumptions, inputs, and calculations. For example, management was unable to provide a documented methodology for how it determined post-pandemic volume projections. Further, management relied on professional judgment to develop these projections due to a lack of historical data to reflect the impact of such a pandemic.
While we agreed using professional judgment was reasonable, we were unable to assess the objectivity of projected scenarios because USPS couldn’t provide documentation or a thorough explanation for key components of the methodology.
Do you believe that forecasting in this pandemic economy goes beyond normal scenario planning? Tell us below!