At this gut-check moment for corporate decision-makers, one tactic to boost their confidence is to demand better cash forecasts from their treasury department. How ironic, then, that the same economic instability that’s producing the angst also works against effective forecasting. Knowing what sales will look like next month or whether the credit markets will thaw soon is, for the moment, uncomfortably elusive.

The irony doesn’t end there. Treasury departments haven’t been exempt from the depletion of human and monetary resources that has plagued almost every corporate function. One solution, the consulting firm Treasury Strategies suggests, is to put faith in the 80/20 rule; that is, 20% of a company’s cash-flow line items are likely to be responsible for 80% of the company’s results. So if treasurers focus strictly on the 20% without wasting precious time and effort on the rest, their forecasts may be pretty accurate, according to John Herrick, a principal of the consultancy. And that may be good enough.

Indeed, aiming for perfection when resources are thin can easily result in a lousy forecast. “Remember that the perfect is the enemy of the good,” Herrick said during a recent Treasury Strategies Webcast. “If you have an elaborate forecasting process but now have [insufficient] staff to run it, you’re going to have to scale back.” Plus, too much detail in a forecast can hamper its usability.

To be more confident of a forecast that doesn’t exhaustively probe every component of cash flow, treasurers should compare the results to those obtained from back-of-the-envelope metrics such as cash flow as a percentage of sales, or even those derived from gut instinct. “If your resources are limited, you might gain some valuable insight that way,” said Herrick.

Meanwhile, if a company’s cash forecasts have been consistently poor — containing significant variances from actual results — one remedy is to improve communication between treasury and those in charge of individual cash flows. That could be as simple as making sure that if there’s a variance stemming from a business unit in Mexico, say, you know who to call there in order to understand the reasons for the variance and adjust future forecasts accordingly.

Herrick told of one client company that decided to make a very large purchase of a raw material because of concerns about an upcoming possible shortage and corresponding price increase. “But they didn’t tell treasury, so the forecast was blown, and hugely,” he said. An essential piece of the forecasting puzzle was missing. After that the company began inviting treasury representatives to meetings of the company’s purchasing council so they would be in the loop and know when normal purchasing patterns were going to change.

Communications are especially important when a merger or acquisition occurs. Accurate cash forecasting is a frequent casualty of such a deal, and often the culprit is poor communication between the legacy treasury group and that of the acquired company, said Herrick. The best solution is to mitigate the problem in advance by orchestrating frequent interaction between the groups before the deal closes.

Interactions with banks are likewise crucial when it comes to M&A. Obviously if a company is planning an acquisition, it’s going to be adjusting its banking relationships such that the necessary funding will be available, but treasurers should also make sure to refine the reports they get from their banks to ensure the information is useful for cash forecasting in light of the deal, according to Herrick.

But it’s all too common even for business units within the same company to be at loggerheads when it comes to cash forecasts, because of inconsistent methodologies. Herrick said that training business units in treasury best practices is a best practice in itself. Ideally, the company should compel everyone to submit their cash-flow inputs into a common system in a common format. The reporting system should facilitate identification of the business units that provide poor-quality information so that corrective action can be taken, he suggested.

Such an effort will be as successful as management’s resolve to make it so. “If the folks at the highest levels of the company reinforce the message that sloppy forecasting will not be tolerated, the forecasting inputs are bound to improve,” said Herrick. One way to enforce that would be to restructure incentive compensation at the business-unit level, he added, acknowledging that doing that may be “easier said than done.”