forecasting

Examples of forecasting in the following topics:

• Impacts of Forecasting on a Business

  • Business planning and forecasting refers to the set of activities where business operations are planned against the business strategy, and what forecast activities or results may occur from operational execution during a particular time period.
  • Forecasting has applications in many situations and impacts multiple aspects of a business.
  • Accurate forecasting will help retailers reduce excess inventory and therefore increase the profit margin.
  • Accurate forecasting will also help them meet consumer demand.
  • On a broader level, economic forecasting is the process of making predictions about the economy as a whole.

• Forecasting

  • An important and often overlooked aspect of forecasting is the relationship it holds with planning.
  • Whether or not this is true would have to be supported with data, but the forecast is that Q2 consumer spending results could forecast Q3 GDP growth.
  • Forecasting plays a role in the implementation of policies and strategies.
  • This flow chart compares quantitative and qualitative forecasting methods.
  • Demonstrate the value and role of effective forecasting in the development of successful strategies

• Steps Required to Forecast

  • Steps of forecast include problem definition, cash flow forecast, profit forecast, balance sheet forecast and profit determination.
  • This seeks to forecast a bank balance after a period – typically 12 months.
  • This forecast shows the sources and application of funds.
  • There are two differences between a cash flow and a profit forecast.
  • The cash flow forecast includes all expenditure in the period, whereas the profit forecast looks to match revenue with the costs associated with generating that revenue.

• Demand Planning

  • HR forecasting is the process of ascertaining the net requirements for staff by determining present and future HR needs.
  • HR forecasting is the heart of the HR planning process.
  • The short-run forecast extends forward from the current forecast and states the HR requirements for the next one-to-two year period beyond the current operational requirements.
  • Typically, the medium-run forecast identifies requirements for two to five years into the future.
  • The long-run forecast extends five or more years ahead of the current operational period.

• The Forecast Budget

  • This requires that we plot cash flows and prepare a forecast.
  • This allows the forecasting period to be weekly or even daily.
  • Consider the following points when preparing forecasts
  • If necessary, prepare two forecasts: an early warning forecast for longer periods of time and a targeted forecast for shorter periods.
  • Apply the appropriate cash flow forecasting method given a company's needs

• Inputs

  • Arguably, the most difficult aspect of preparing a financial forecast is predicting revenue.
  • Outside analysts can use a financial forecast to estimate a company's success in the coming year.
  • Judgmental forecasting methods incorporate intuitive judgements, opinions and subjective probability estimates, such as Composite forecasts, Delphi method, Forecast by analogy, Scenario building, Statistical surveys and Technology forecasting.
  • Usage of forecasting can differ between areas of application: for example, in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period.
  • Forecasts are company specific and can either show negative or positive trends.

• Financial Plan and Forecast

  • Most organizations prepare a revised forecast for the balance of the year, taking into account earlier budgets and forecasts.
  • Organizations may carry out a form of economic forecasting which is the process of making predictions about the economy.
  • Some forecasts are produced annually, but many are updated more frequently.
  • Managers like to develop forecasts of figures such as sales, costs, cash, profits, interest rates using different assumptions.
  • Another word for forecasts is scenarios.

• Strategic Planning

  • A financial forecast is an estimate of future financial outcomes for a company.
  • Arguably, the most difficult aspect of preparing a financial forecast is predicting revenue.
  • Outside analysts can use a financial forecast to estimate a company's success in the coming year.
  • Financial forecasting is often helped by processes of financial modeling.
  • Financial forecasting is essential for a company's strategic planning, management, and organization.

• Impact of Modifying Inputs on Business Operations

  • Modifying inputs such as accounts receivable, inventory, and accounts payable will significantly influence forecasting and business operations.
  • Modifying any one of these inputs can lead to major changes in forecasts.
  • The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting.
  • Since inventory is such a prevalent expense, accurate forecasting is of the utmost importance.
  • Inventory management is a modifying input that can impact financial forecasts

• Regression Analysis for Forecast Improvement

  • Regression Analysis is a causal / econometric forecasting method that is widely used for prediction and forecasting improvement.
  • One can forecast based on linear relationships.
  • Regression Analysis is a causal / econometric forecasting method.
  • Some forecasting methods are based on the assumption that it is possible to identify underlying factors that might influence a variable that is being forecast.
  • Regression analysis is widely used for prediction and forecasting, where its use has substantial overlap with the field of machine learning.