Forecasting in BusinessEssay title: Forecasting in BusinessForecasting in Week FourForecasting is an integral part in planning the financial future of any business and allows the company to consider probabilities of current and future trends using existing data and facts. Many times, this unique approach is used not only to provide a baseline, but also to offer a prediction into the corporationЎ¦s future. Planning problems, whether dealing with services or merchandise, can cause any manager headaches easily solved by forecasting. It is important that any manager realizes that the past is a key to the future. Although no long-term plan is perfect, using the correct forecasting tool, along with continual evaluation, allows the manager to review and update corporate financial plans.
Types of forecastingForecasting can be classified into four basic types: qualitative, time series analysis, causal relationships, and simulation (Chase, Jacobs, & Aqualino, 2006, p. 513). The purpose of forecasting is to translate experience from the past into an educated guess for the future. Each of the four types has its own merit and can be useful to the business manager. The type chosen will be determined according to the result of the forecasting prediction that is desired.
A qualitative forecast involves observation, is expressed in terms of quality, and most often is subjective. It is non-numerical and involves the opinions or views of the appropriately educated individuals making the forecast. Many managers prefer using their own judgments of those of other professionals rather than using information produced by a computer. Examples of qualitative forecasting methods are the Delphi method and the market research method.
Causal and time series forecasting are both examples of quantitative forecasting and involve the use of numerical data and make specific the hypothesis and procedures to produce forecasts. Quantitative forecasting can only be used when the information being forecast has past numerical data available. A quantitative forecast will assign a margin of error to the forecast, thus assigning an uncertainty to the prediction.
Qualitative forecastingQualitative forecasting methods seek opinions on which to base decisions such as consumer panels or focus groups. The Delphi method of forecasting is a group decision procedure based on the predictions of a panel of experts who agree on the likelihood that certain events will occur. The professionals anonymously answer a series of questions. The answers are then tabulated by an independent moderator and the responses are then given back to the original panel that may make changes to their own answers. This method is very time consuming and expensive, however, the end result is reliable and creative. Delphi is used to assist with the formation of a group judgment.
The key elements of the Delphi system areЎ§structuring of information flow, feedback to the participants, and anonymityfor the participants. Clearly, these characteristics may offer distinct advantages over the conventional face-to-face conference as a communication toolЎЁ (Illinois Institute of Technology, 2006).
The moderator will filter out any unnecessary interactions occurring in the group keepingthe group task oriented.Market research is a forecasting tool that formulates a hypothesis and then Ў§organizes sample surveys, polls, focus groups, and other techniques to study market characteristics (e.g., ages and incomes of consumers; consumer attitudes) and improve the efficiency of sales and distributionЎЁ (The Columbia Electronic Encyclopedia, 2003). The instrument is used by corporations to expand new manufactured goods, launching of new markets, measurement of advertising success and value, and data related to corporate opponents.
Quantitative forecastingQuantitative forecasting uses statistical data such as identifying trends, moving averages, and extrapolation to help in making an informed decision. Causal forecasting is based on a known or perceived relationship between the factor to be forecast and other external or internal factors (Idea Velocity, 2005) and is used when a corporation can identify a relationship that is well established, stable over a period of time, have independent variables that are legitimate causal factors and independent of each other, and the variables being considered are easy to predict. Extrinsic variables shape the forecast. A causal forecast asks the question, Ў§Will history repeat itselfЎЁ? Identifying causal factors can be a difficult chore for a business to accomplish and require an astute manager familiar with various
The Problem
Why do I see a problem? Are we still on the precipice of a downturn? Can we do things that were the past? Or can we get something right? For business executives, a downturn is certainly an important event that needs to be recognized, but where does it end and what are its consequences?
Brief History
Founding Company
Mention I mentioned that we’ve been to the bottom of the ocean at least 1,500 times during the previous ten years and that we don’t really seem to know much about it right now (Dinner). Our success in the world of software development started because we were able to make sense of what it was like for us in the 1980s (Dinner and some of our other jobs had started to become part of the industry and eventually I remember meeting a guy as the CTO of an aerospace company in North Dakota (Dinner and a CFO of the big aerospace firm Space) who was doing all the things other folks, some of us used to do on our own, are now doing on our own). We started because I had some ideas for a solution (I’d been to a bunch of other places to do something that had nothing to do with me, I’d gotten tired of being stuck on the beach, having an afternoon nap, sitting on the sand, not working with computers, a lot of really high-value functions, etc). The big question we ask is how far can you get ahead in software because the only job with a real high demand level is being part of a big company.
Cynicism
We’ve had a lot of talk about “software needs are huge”, but I just know we need more and more talented software engineers. We’re not going to spend any more money on people who are going to get their hands on software from start to finish. We’re not going to spend it on everybody who is in a small startup but you can say it’s true. We really know that, but we’re stuck on this question, how about we give more people what we really want? Are we creating products that really solve the problem? We may even want to make it into an operating system, that’s why we’re in business.
The Future
If we can get the industry to agree that it doesn’t need us that much (software and data management are very important to us), then it can be done. The future could have to be what the industry likes to call “disruptive” or it could see something like a disruptive technology in its place (i.e. the internet, artificial intelligence etc). I feel we really need to see them get their asses kicked and see how they do it – and they won’t be able to do it for quite some time.
The Problem
Why do I see a problem? Are we still on the precipice of a downturn? Can we do things that were the past? Or can we get something right? For business executives, a downturn is certainly an important event that needs to be recognized, but where does it end and what are its consequences?
Brief History
Founding Company
Mention I mentioned that we’ve been to the bottom of the ocean at least 1,500 times during the previous ten years and that we don’t really seem to know much about it right now (Dinner). Our success in the world of software development started because we were able to make sense of what it was like for us in the 1980s (Dinner and some of our other jobs had started to become part of the industry and eventually I remember meeting a guy as the CTO of an aerospace company in North Dakota (Dinner and a CFO of the big aerospace firm Space) who was doing all the things other folks, some of us used to do on our own, are now doing on our own). We started because I had some ideas for a solution (I’d been to a bunch of other places to do something that had nothing to do with me, I’d gotten tired of being stuck on the beach, having an afternoon nap, sitting on the sand, not working with computers, a lot of really high-value functions, etc). The big question we ask is how far can you get ahead in software because the only job with a real high demand level is being part of a big company.
Cynicism
We’ve had a lot of talk about “software needs are huge”, but I just know we need more and more talented software engineers. We’re not going to spend any more money on people who are going to get their hands on software from start to finish. We’re not going to spend it on everybody who is in a small startup but you can say it’s true. We really know that, but we’re stuck on this question, how about we give more people what we really want? Are we creating products that really solve the problem? We may even want to make it into an operating system, that’s why we’re in business.
The Future
If we can get the industry to agree that it doesn’t need us that much (software and data management are very important to us), then it can be done. The future could have to be what the industry likes to call “disruptive” or it could see something like a disruptive technology in its place (i.e. the internet, artificial intelligence etc). I feel we really need to see them get their asses kicked and see how they do it – and they won’t be able to do it for quite some time.