Forecasting techniques

Question 1

What is business forecasting?

Answer 1

Refers to tools and techniques used to predict developments in business, such as sales, expenditures, and profits

Financial forecasts are fundamentally informed guesses, and there are risks involved in relying on past data and methods that cannot include certain variables

Forecasting approaches include qualitative models and quantitative models

Question 2

Why is business forecasting valuable?

Answer 2

Forecasting is valuable to businesses so that they can make informed business decisions

Question 3

What THREE costs should be monitored?

Answer 3

Committed costs – these reflect confirmed orders for future provision of goods and/or services

Accruals – work partially or fully completed for which payment will be due (purchase order)

Actual costs – money that has been paid

Question 4

Why are forecasting techniques useful?

Answer 4

Help organizations plan for the future

Some are based on subjective criteria, others are based on measurable, historical quantitative data

Question 5

What are the TWO forecasting techniques?

Answer 5

Quantitative- straight line method - uses historical figures and trends to predict future revenue growth of an organisation (extrapolation) e.g. econometric modelling / time series methods

Qualitative- uses market research, polls and surveys to predict the future performance of an organisation e.g. Delphi method