Module 3 Flashcards
A projection of future sales, revenues, earning, costs and other possible variables that are helpful in the firm’s operations
Forecasting
Primary objective is to reduce risk or uncertainty that the firm will face in making decisions
Forecasting
Starting point of business planning
forecasting
who uses forecasting as a tool for decision making?
Top management
Production manager
Purchasing manager
Marketing manager
Finance manager
Human resource maganer
Makes use of forecasting as a tool for long-range planning, particularly in providing a basis for performanc targets, etc
top management
utilizes forecasts to determine the amount of raw material what will be needed in production
production manager
Uses the forecast to ascertain the volum or bulk of material that should be purchase
Purchasing manager
Use forecast to estimate how much sales should be maid in a particular period
Marketing manager
use forecast to anticipate the funding needed by the firm
Finance manager
Use forecast to supply the human resource needed in achiveing the firm objective
Human resource manager
Two approaches to forcasting
quantitative
Qualitative
incorporate factors such as the decision maker’s intuition, emotion, personal experience, and value system; useful in formulating short term forecast
Qualitative (or judgement) forecast
Qualitative forecasting methods
Expert opinions
Delphi method
Sales force polling
Consumer market surveys
PERT-derived forecasts (program evaluation and review techniques)
The views of the manager or a group with high level of expertise
Expert opinions
similar to expert opinion. But that members of a group of experts are asked individually through a questionnaire
Delphi method
every sales person estimates the sales in her region; the responsibility of drawing up the forecast lies with the people
sales force polling
Firm, at times, conduct their owm or potential customer surveys to accumulate information regarding future purchasing plans
Consumer market surveys
A methodolody requires that the expert provide 3 estimates: pessimistic (a), the most likely (m), and optimistic (b)
PERT -derived forcasts
Program Evaluatuon and Review Technique
Lokking ahead to see what actions should be to realize particular goals
Planning
looking backward, determining what actually happened and comparing it with the previously planned outcomes
control
Financial plans for the future and are a key component od planning. They identify objectives and the actions needed to achieve them
budgets
Plots a direction for an organization’s future activities and operations. It generally covers at least five years
Strategic plan
Previous year’s budget is irrelevant in allocating resources for the current year
Zero base approach
starts with previous years budget
Incrementak based approach
The comprehensive financial plan for the organization as a whole
Typically for one year period
Yearly budgets are broken down into quarterly and monthly budget
The master budget
A movingb12 month budget
As a month expires in the budget, an additional month in the future is added sonthe company always has a 12 month plam on hand
continuous budget
Review the budget
Provides policy guidelines and budgetary goals
budget committee
Usually the controller, is the pedson responsible for directing and coordinating the organization’s overall budgeting process
Budget director
The maater budget major components
operating budgets
Financial budgets
Describe the income generating activities
operating budget
Details the inflows and outflows of cash and the overall financial position
financial budget
Approved by the budget committee and describes expexted sales in units and pesos
The basis for all of the other operating budgets and most of the financial budget
sales budget
tells how many units must be produced to meet sales needs and to sarisfy endinf inventory requirements
production budget
tells the amount and cost of raw materials to be purchased
Direct materials purchases budget
Shows the total direct labor hours and the direct labor cost needed for the number of units in the production budget
Direct labour budget
use a variety of mathematical models that rely on hiatorical data and/or causal variables to forecast demand
quantitative forecast
Assumes that the future is a funtion of the past. Thus, historical data are used to predict the future using sequences with equal period
time series forecasting
the gradual upward or downwaed movement of the data over time
trend
data pattern that repeats itself after a period of days
Seasonality
a pattern of data that occurs every several years
Cycle
blips in the data by chance and unusual situations
Random variations
Such as linear regession, incorporate the variables or factors that might influence the quantity beinh forecast
Associative or casual models
