Applications of Forecasting by Firms

Forecasting is used as a tool for planning. When developing forecasts, firms need to think of all possible scenarios and their future impacts.

For example, if you are in a management role and overforecast sales, you will then overforecast employees or payroll as you will schedule more employees than needed to meet your projected sales. This overforecasting will lead to excess purchasing of supplies and, ultimately, lead to insufficient cash flows because you will need to pay for expenses incurred to maintain and provide services for revenues that did not come in as projected. A small error in forecasting at the start can significantly affect overall results. In this assignment, you will be exposed to the basic principles of forecasting.

Tasks:

Research a firm that applies forecasting principles and methods. You can take examples from your own work experiences. You can also consult sources such as the Wall Street Journal, Financial Times, Bloomberg Markets, the Economist, US News and World Report, and the Argosy University online library resources.

Create a 3-4 page research paper that includes responses to the following:

  • Identify the sales forecast for the firm.
  • Analyze how this sales forecast impacts all other forecasts for the firm, such as materials, labor, overhead, cash receipts, and disbursements.
  • Explain the exogenous factors that you need to be aware of when developing these forecasts. Assess the GDP, rate of inflation, rate of unemployment, and interest rates trends.
  • Evaluate the prerequisites of a good forecast that you should keep in mind as a manager when budgeting sales and production amounts.
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