We recently discussed forecasting in class, and it made me realize how important this step is in operating a successful business. I think it was a great way for me to understand the “behind the scenes” operation of a business, and what they usually do to achieve those goals. I personally thought companies just forecasted their sales goals simply by percentage, which may be the case for most business but not all. If for example a company did 100 sales in a given period, they would want to increase those sales by a certain percentage. I never realized that they used a moving average, a weighted moving average, or even a trend projection. It seems like all of these things are potentially a good way to project sales, but which one should a company use? Should companies use different forecasting methods based on their industry, or would they use all methods to get an idea of their sales goals? What if they’re not in the sales industry?
I currently work for a worldwide bank in a department that doesn’t produce any revenue, but we still set goals for ourselves. Instead of forecasting sales goals, what we try to do is forecast future spending. We are looking to continually decrease our spending, and trying to determine why our spending is so high. What we found is that the quality of the products we had purchased was very low, and in turn causing us to frequently replace those products or requires much maintenance. With the approval of management, we decided to purchase quality products that will work well with our systems, and which will not require frequent maintenance. We found that spending the extra money on these quality products will decrease our maintenance budget by a significant amount and will save money in the long-run. Although our spending was higher in the last few quarters with the purchase of quality products, we are hopeful to see results that would prove our speculations to be true. If all goes well and these products are as good as they make them sound, we should start seeing our spending reduced by at least 12% each quarter. I think Senior Management will be glad to see that we were able to come up with an action plan to significantly reduce our spending, while maintaining the same quality service that people expect (if not more).
Do you think there’s other ways to forecast goals? What ways? Can you think of any type of company or industry that will not be able to forecast their goals?
I think there is other ways, as you discussed, to forecast goals. I think you need to base it off the purpose, or main factor of your business. By doing this, you can get meaningful predictions of future activity. An example of this would be charitable company forecasting how many people they will help in a year.
Forecasting is an integral part of doing good business. Leading companies in the market start their business plans by basing them on forecasts that will drive the rest of their revenue and expense budgets.
I work as a business analyst for my company and I can assure you that the type of business your company is in will determine the method of forecasting you will use. Just to give an example airline industries are cyclical or seasonal in nature while the food industries are not to some degree. A technique like the smoothing curve will make sense in dealing with outliers in a trend for the food industry but it will not be appropriate in the airline industry.