Business Forecasting Skills needed to become a business

Business Forecasting • Skills needed to become a business & economic forecaster – Economic knowledge – Statistics – Computer applications – Communication • Forecasting as an art, as well as a science

Decision Making • The goal of the forecaster is to provide information for decision making • Purpose is to reduce the range of uncertainty about the future • Demand forecasters is derived based on their final use • Three elements in common are (1) time, (2) uncertainty, and (3) reliance on statistical analysis, primarily of historical data. • Planning and forecasting are complementary, not substitutes

The Forecasting Process 1. 2. Determine the purpose or objective of the forecast Select the relevant theoretical model (identify influences, classify as internal or external, and identify possible constraints) 3. Collect data 4. Analyze data (Data analysis often determines model choice. ) 5. Estimate the original model (You may initially select for comparison more than one technique. ) 6. Evaluate the model and revise 7. Present initial forecast to decision makers 8. Make the final revision 9. Distribute the forecast 10. Establish monitoring procedures

Business Cycle: Past and Present • Theories of the business cycle • Wesley Clair Mitchell and the NBER http: //www. nber. org/cycles. html/ • NBER recession dating procedure http: //www. nber. org/cycles/recessions. html • Recent U. S. economic performance http: //rfe. wustl. edu/Econ. FAQ. html

Forecasting Tips • Consensus forecasts are nothing more than averages. Study extremely optimistic and pessimistic forecasts for information. • Forecasts are always wrong, be able to explain why. • Focus a forecast on a range rather than a single point. • Develop tools to monitor forecast performance over time. • Simple models are preferred over complex models (cost/benefit analysis). • Understand be able to explain your forecast procedure to decision makers. • Be especially on the lookout for exogenous forces that influence your forecasts and even lead to turning point errors. • Be humble; your forecast is to help decision makers and is not an end in itself.