Forecasting Workbook

Forecasting Workbook
Forecasting, by some method or other, is necessary and is as inescapable in business life as breathing and digestion are in physical life. Every successful business concern- Big Steel or the corner grocery- must anticipate the needs of its customers, the demand for its products, the prices it must pay, and the prices it will be able to collect. Business forecasting of this involuntary kind needs no advocate, requires no justification, and like other arts permits of few generalizations. A few forecasters of this psychic type may be highly successful, but why they are successful or how they reach their conclusions they can explain no more than they explain the involuntary processes of their healthy digestions. Business forecasting is usefully divided into two main categories. The first is the forecasting of the trend of general business or the forecasting of aggregate sales of an entire industry. This group of forecasts may be called, for convenience, external, forecasts because the forecasts relate to conditions external to the individual company. The second group- internal forecasts- includes all the forecasts that are limited to the operations of a single company.
1. Successful planning of long-term investment programs of new mills and other facilities and of corresponding new capital requirements depends on reasonably accurate long-term (15 to 30 years depending on the nature of the business) forecasting of sales. Government’s legislation as well as specific trends of country’s development (immigration, GNP, GDP, political as well as socio-economical conditions) need to be taken into account while undertaking the long-term forecasts. 2. Specific community analysis and the effect that city or region’s council might have on the overall development and growth of the business needs to be taken into account for the medium term forecasting, which is 5 to 15 years long. Local organizations should be viewed from the lesser time extension aspect than those organization that pertain to big industries and require some degree of government involvement. Finally, medium term forecasting requires scrutinized as well as painstaking research on the more local level. 3. As far as immediate-forecasting (6 months to 3 years: similar factor as explained in the previous case should be analyzed while determining the time span of forecast) goes, one should consider the influence that a new school, construction site or opening of the new hospital in the neighborhood will impose on the particular company or organization. 4. If a person decides to draw any definite conclusion about the nature of the organization or company, one has to consider these depicted above periods of time while performing the research. For instance, if Virgin Blue Australian Airlines were to depict there method of forecasting the following summary would be drawn. First, short- term forecasting involves predicting the weather, stability of the ground and other major physical conditions that can be easily determined using the modern navigational as well as practical devices. Second, medium- term forecasting makes the researcher to study the basic tactics of its major competitors as well as evaluate the results that new legislation in some countries will have on the airlines’ performance. Third, global issues such as terrorism, merging of similar companies, possibility of expanding or penetrating a different market belong to the long term forecasting of the company such as Virgin Blue. 5. Another example of practical usage of forecasting would be estimating how long it could take a person to get to the University on Monday. He or she needs to consider at what time this individual usually gets up and prepares for the day (thus using statistical or past experience of forecasting). Then this person has to roughly estimate the time that the journey to a specified place takes. Finally, he or she must take into account unexpected train or buses delays, adverse weather condition, and probability of the accident that can occur on any given day. 6. If one was to forecast the mark that the individual is to receive at any given class, he or she must by all means calculate his or her average grade as of that time, take into account attentiveness and participation, and draw some conclusion about instructor’s attitude toward this person. 7. If somebody was to determine whether a person sitting next to this man or woman will receive similar grade, basically the same approach would be required but greater emphasis should be made on that person’s academic abilities and level of material comprehension.
8. Proposals for inflation forecasting as a strategy for monetary policy leave open the important question of how to determine whether current policies are consistent with the long-run inflation target. An interesting possibility is that the central bank might target current private-sector forecasts of inflation, either those made explicitly by professional forecasters or those implicit in asset prices. In a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply, it is shown that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium, and that policies approximating strict inflation-forecast targeting are likely to have undesirable properties. It is also known that economies with more general forecast-based policy rules are particularly susceptible to indeterminacy of rational expectation equilibrium. One concludes that, although private-sector forecasts may contain information useful to the central bank, ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions. As a strategy for conducting monetary policy, inflation forecasting has both advantages and disadvantages. One potential advantage is increased transparency of monetary policy, that is, better communication of policymakers’ objectives and intentions to the public and the financial markets. A second desirable feature is that, by setting targets for its goal variable rather than for an intermediate indicator, the inflation-targeting central bank may avoid the velocity instability problem, which arises when there are unexpected changes in the relationship between the intermediate target and the ultimate objective. 9. If a person were to forecast the number of students that could enroll at the Macquarie University, one would definitely have to undertake a careful as well as thorough research in order to determine a shire cause for conducting such research and extensive study. Internal forecasts start with an estimate of number of students usually for a year. This anticipation may be based on external forecasts of the total market of students and the historical percentage of this total market, which the specific organization can reasonably expect to attract. More often such prognosis forecast is based on an analysis of individual students approach, gathering major number of people, and estimates of number of students made by the directors and field forces of the University. Finally, the strategic implications for forecasting the number of students for the next five years would largely depend on the current position that this organization occupies on the marker as well as reasonable infrastructure changes that might be adopted in the long run.