Analyzing Forecasting

Impacts of Forecasting on a Business

Business planning and forecasting refer to the set of activities whereby business operations are planned against the business strategy and what forecast activities or results may occur from operational execution during a particular time period.

Firms should always assume they will be reviewed by a bank manager, regulatory agency, or investor when preparing financial forecasts. With this goal in mind, the firm should be guided to keep forecasts tidy and easy to understand by grouping cash inflows and outflows in simple ways that are easy to understand quickly.

Forecasting financial statements estimate several values – including sales, costs, and expected interest rates. Since actual business activities are planned in relation to these estimations, realistic expectations and estimations must be undertaken. With this in mind, there are specific points of interest to lenders and investors that need to be addressed. The profitability of a business reflects a sound relationship between market-driven sales projections and accurate cost estimates.

• Have you planned to have sufficient cash to meet your regular bills and non-regular costs (like annual insurance premiums)?
  
  
• Does the business's financial position remain sound when growth is forecast (this is what the balance sheet is for)?
  
  
• Is there a sensible balance between borrowings and the amount contributed by the owner (when the business is raising capital in its own right)?
  
  
• Are short and long-term obligations matched with relevant finance options?
  
  
• Do key business ratios remain within sensible bounds?

It is always easier to forecast a business's future performance when it is already up and running because there are past trading results to look at. When a completely new venture is being planned, a certain amount of imagination and estimation is required. However, this is in no way a license to be overly optimistic.

Forecasting has applications in many situations and impacts multiple aspects of a business. One such aspect is Supply Chain Management. Forecasting can be used in Supply Chain Management to ensure that the right product is at the right place at the right time. Accurate forecasting will help retailers reduce excess inventory and, therefore, increase the profit margin. It 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. Forecasts can be carried out at a high level of aggregation – for GDP, inflation, unemployment, or the fiscal deficit – or at a more disaggregated level – for specific sectors of the economy or even specific firms.

Economic Impact Studies on the economic impact of business operations should be considered when forecasting financial statements and business activities. For example, a mining company may consider a study such as the one pictured here.

Other important areas of forecasting include:

• Egain Forecasting
  
  
• Land use forecasting
  
  
• Player and team performance in sports
  
  
• Political Forecasting
  
  
• Product forecasting
  
  
• Sales Forecasting
  
  
• Technology forecasting
  
  
• Telecommunications forecasting
  
  
• Transport planning and Transportation forecasting
  
  
• Weather forecasting