Chapter 1 It’s Not Just about Forecasting
The following are the key points in the chapter. Elaborate on each
point in at least 30 words.
- Understanding economics can help you to diagnose the causes of
increases or decreases in sales volumes and costs. **understanding
economics helps you understand the various moving parts of an active
market. For example Businomics outlines an example in which deposit rate
decline and growth affected things like advertising, interests rates,
and positions in companies with things such as firing people like an
executive just because of a slow down from the federal reserve money
growth. Understanding economics can also help you to understand cost
increases and decreases from things such as excess and under supply of
different kinds of materials. Understanding how a market works and its
tendencies, different companies and the overall size of that market can
then aid you in helping to make future models and recommendations for
that market.*
- Business decisions are about the future and must rely on a view of
the future. **Demand for certain materials or services and the companies
which supply that will always fluctuate. For example look at Sears
evryone used to go there and now they barely exist. That is because they
didn’t look to the future. They thought everybody needs our product
currently so they must need it in the future. However no one can
actually predict the future so you can try to make economic forcasts and
see how the market is changing and their preferences like people wanting
simpler buying options for things like cars and if they want to buy the
cheaper more simple one. The book talks about not being overly reliant
on forcasts however. It seems its also very important to take current
data and changes in the tendency of the market and keep up with that
trend in the present in order to aid a prediction about the distant
future.*
- Economics can help you form a more accurate vision of the future,
compared to other common methods of forecasting. **Sometimes a companies
employees from different departments from a company can become too
focused on their product and the way that just they produce that for the
company, they don’t coordinate with other departments and they only see
their analysis. For example in the book Pacific Gas and Electric’s
engineers predicted a much higher demand for electricity and were going
to build a new 1 billion dollar coal plant. Economists looked at the
whole picture and how the demand was lower the higher prices would mean
lower demand. The engineers didn’t see thsi at first and when the
companies management took the economists advice they saved 1 billion
dollars. By understanding different sectors of the market and bringing
different sectors of the company together tehy were able to creat a
better forecast and give the company a better chance at
succeeding.*
- As a business manager, you should focus more on the broad magnitudes
of changes rather than specific numbers. **Only looking at numbers can
make you hyper focused on getting the exact estimates correct it is more
important to try to communicate a forecast in terms of an idea of how
the market will change opposed to the exact percentage or monetary value
in which that market will change. For example it would be better to say
we predict there will be an increase in demand for GM cars and show that
the general idea is that you should be preparing for an increase in
sales rather than just saying our car sales are predicted to increase by
3.5% still back your claim up with data but the adjective explanation
helps grab people’s attention and understand the idea better.*