Business Forecasting Chapter 11 Communicating Forecasts to Management

Chapter Topics Forecasts and Their Use in Managerial Decisions Presentation of Forecasts to Management The Future of Business Forecasting Chapter Summary

Allows organizations to make appropriate decisions. Essential in providing the decision makers with information on: Forecast of sales Cash flow Inventory Cost projections Implication of tax hikes on profits Effects of monetary policy on the business sector. Use of Forecasts in Managerial Decision

Presentation of Forecasts to Management Methodologies discussed in this book can effectively be used by small and large business units. Analysts for either sized firms can assist management to make good business decisions. To be effective in their role as forecasters, the analyst must pay attention to the following:

Presentation of Forecasts to Management Why is the forecast needed? Who will use the forecast? Participation of management is needed in the initial stage. The Analyst must understand management’s problems and concerns. Specifically, they should try to understand: What level of detail or aggregation is required. What time horizon should be used in the forecast.

Presentation of Forecasts to Management A good forecast incorporates feedback from management. Forecasters and managers should pay attention to some common mistakes that undermine the forecasting process: Poor or inadequate data system Lack of commitment on the part of the middle management Decision makers may find the data or the forecast are not available in a timely fashion.

Presentation of Forecasts to Management If an incorrect model is used, the analyst should inform the management of its consequences. The forecasting unit should be an integrated part of the existing corporate structure. In communicating the forecast, the analyst has to recognize the political and human relations skills.

Presentation of Forecasts to Management To develop the human relations skills and protect the integrity and objectivity of the forecast, the analyst should follow the recommendations of Bails and Pepper (1993): Become familiar with those who use the forecast. Learn about the user’s concerns. Before you start your forecast, resolve any concerns of a particular business unit. Defend your forecast against purely political concerns.

The Future of Business Forecasting Uses of forecasting are numerous. Good decisions are based on good forecasts. Forecasts are used for: Budgeting Planning Specific areas such as production, inventory control, marketing, advertising, sales projections, and investment. Recent economic downturns around the world point to the need for strategic planning.

The Future of Business Forecasting Forecasting tools can effectively be employed in such planning strategies. Given the interdependence of nations on trade, resources, and investments, business organizations cannot make choices without good forecasts.

Chapter Summary Communicating the results of a forecast is just as important as making the forecast. The forecasting process calls for a clear understanding of who, how, and when the forecast is used. Forecasters need to understand how management wishes to use the forecast— planning or control and budgeting. In a globalized world, good forecasts provide strategic tools for management.