Week 2: Best Practices 1

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 the principles of economics will help you decypher if the increase or decrease in sales volume and/or costs is inline with current economic trends or if the changes are isolated to your business. Being able to gather a firm grasp on where your enterprise stands in not only the current nationation cycle but your industry cycle as well.
• Business decisions are about the future and must rely on a view of the future.
  • Businesses that do not plan for the future will not survive in the long term, even if they are able to ride a bubble to short term economic success. Forecasting gives enterprising a step a head when looking at the future. To be able to read economic indicators and predict when and where money will be needed will minimize risk and maximize profits.
• Economics can help you form a more accurate vision of the future, compared to other common methods of forecasting.
  • Economics give a much more accurate forecast than other methods due to their ability to predict longer term trends than other methods. This creates a much more accurate view of the future than other methods. While economics creates a much more accurate picture of the future than other methods, it is not perfect and it is important to not put all your eggs into one basket.
• As a business manager, you should focus more on the broad magnitudes of changes rather than specific numbers.
  • When making long term forecasting decisions it is important to present results in a broad magnitude of change rather than specific numbers. This is due to economics not being an exact science with many variable unaccounted for, meaning a broader approach to presenting the data will lead to more room for error. Due to forecasting not being to be completely accurate running multiple different simulations to create a range of possibilities. Having this large range will allow you to prepare for all possibly scenarios.