Academic journal article Journal of Business and Entrepreneurship

Forecasting Behavioral Differences between Domestic-Focused and Worldwide-Oriented Firms

Academic journal article Journal of Business and Entrepreneurship

Forecasting Behavioral Differences between Domestic-Focused and Worldwide-Oriented Firms

Article excerpt

ABSTRACT

This paper compares forecasting behavior between domestic-focused (North-American-oriented) firms and worldwide-oriented firms and examines questions such as who does the forecasting, how often is forecasting accomplished, what areas are forecasted, what techniques are used, why forecast, what results from the forecasting effort, and are the forecasters satisfied or dissatisfied with the process and/or the results. This paper discusses significant differences in forecasting behavior between the two groups, makes conclusions, and provides recommendations.

INTRODUCTION

Forecasting is estimating some future event or condition which is at least partially outside of an organization's control and provides a basis for managerial planning and control. Organizations forcast so that they can plan and help shape their futures. Forecasting is a crucial input for planning in almost all companies. These estimates are major components of the business decision-making process. When accurate, estimates of future economic activity associated with specific courses of action can correctly guide corporate strategy in an uncertain environment; when inaccurate, they can bankrupt.

Forecasting plays an important role in every major functional area of business management. More companies probably undertake some form of forward estimation of their markets and their sales than any other aspect of their activities. The estimates produced may be used in a variety of ways, such as production planning, sales force planning, setting advertising appropriations, estimating cash flow, assessing the need for innovation or diversification, and in considering the general position of the company in the future. Although much of this forecasting is very good, some of it is of doubtful value. In marketing, forecasting is doubly important; not only does it have a central role in marketing itself, but marketing-developed forecasts play a key role in the planning of production, finance, and other corporate activities.

Forecasting techniques range from simple to complex. All are designed to produce accurate, unbiased estimates of future activity in the presence of uncertainty. Applications of forecasting techniques can be improved as the forecaster gains experience and sophistication. However, there is always a risk that the forecaster's experience, expectations and hopes, among other things, may introduce bias and error. Forecasting of new, complex, and rapidly changing high-technology products is particularly difficult because of limited experience and a greater than usual number of unknowns.

FORECASTING PRACTICALITIES

Here are some of the facts that small business managers should know about forecasting:

1. Accuracy of Forecasts: Forecasts are almost always wrong. The only real question is, how much? Why then should one forecast bad numbers? In most businesses, a certain amount of error can be tolerated. This is called acceptable error, which varies from company to company, and industry to industry. This variable depends on many factors, including required reaction times, size of the company, and cost of an error to the company.

2. The Time Horizons of Forecasting: The longer the time horizon of the forecasts, the greater the chance that established patterns and relationships will change, thereby invalidating the results. Specifically, the more time competitors have to react to predicted events or the predictions themselves, the more they can influence future events for their own benefit. Changes in the environment including technology, competitors' strategy, buyer behavior, and government regulations impact the behavior of the forecasted variable. The farther into the future that one projects, the more likely unexpected environmental changes will occur. Many of these environmental changes cannot be envisioned for long-term predictions. If they cannot be envisioned, they cannot be predicted, and hence their effects on business cannot be predicted either. …

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