Undercast, also referred to as underestimation, is a forecasting error where the estimated numbers are lower than the realized numbers. This concept concerns the accuracy of financial estimates, expenses, income, cash flows and any other financial metric which is mostly dependent on past performance. The majority of businesses use estimates and forecasting to set viable expectations on their future performance to help them plan and prepare for changes and sudden developments in the market. Despite the best of efforts, there are times when these estimates fail to take into account certain variables, leading to an underestimation in performance compared to expectations, thus leading to an undercast situation.

Undercasting can be caused by a variety of factors. Businesses who are conservative in outlook tend to underestimate their projections as they do not want to set too positive of an expectation and risk under delivering. On the other hand, a rapidly changing market can be difficult to forecast and can lead to misjudged estimates. Estimations are also not always an honest reflection of the market with management teams manipulating numbers in order to make it easier for the business to “outperform” their expectations. This kind of behaviour is obviously misleading and can lead to companies experiencing an over performance one quarter and then experiencing a significant drop off as the effects of undercasting take hold.

Undercasting, in all of its varieties, is an issue that needs to be addressed as soon as it is noticed. When constant predictions are being made with lower estimations than actual market performance, it becomes increasingly difficult to measure the true success of a business and allocate resources accordingly. This can act as an inhibitor to growth, as a company’s strategy is based on incorrect information and not precise and accurate estimates.

In conclusion, undercasting is an important concept to consider in the context of forecast accuracy. Whether caused by a conservative outlook, market volatility or sly underhanded tactics, when true performance is not factored in to estimates, it can act as an overall performance inhibitor and should be recognized as such. Taking the appropriate steps to assess and consider historical data as well as how the market is moving overall can help to ensure estimates are as accurate as possible and reduce the chances of undercasting.