It is no secret that the widespread practice of many leaders and business owners to turn to prophecies about the future of their own business to all sorts of soothsayers, fortune tellers and bioenergetics.
All these arts, which arose from the inability or incapability of a human being to explain or clearly justify natural things, have their origins in the birth of mankind. And the effectiveness of the path to the bright future through such guides raises many discussions and, above all, doubts.
But today we will turn to the problem of awareness of the business owner or manager of the upcoming or imminent events.
As the saying goes, “preparing for a rainy day” is necessary in actual management work, but the premise is that it is based on the accurate prediction of the future development of the enterprise, rather than random behavior without purpose and no clue. Before making a major decision that has far-reaching impact on the enterprise, decision makers must have sufficient evidence to support themselves based on the summary of the past and the prospect of the future. Of course, predictions cannot be as accurate as myths, but managers have an in-depth understanding of the political, economic, and cultural development trends of the entire external enrironment.
Forecasting is the art, the science, of predicting future events . It involves collecting historical data and extrapolating to the future with some mathematical model . It can also be a subjective or intuitive anticipation of the future. It can also be a synthesis of the above, a mathematical model adjusted by the manager’s good judgment. It is the act of using scientific theories and methods to predict and speculate the inevitability and possibility of the development of things.
Operation forecast refers to the prediction and projection of the future development trend and status of the production and operation activities of the enterprise based on the existing economic conditions of the enterprise, the historical data and the internal connection of objective things. Under the conditions of socialist market economy, competition among enterprises is inevitable. If an enterprise wants to be in an invincible position in the competition, it must make accurate predictions and speculations on the development trend of the whole market. Enterprises must make further decisions and planning on the basis of accurate business forecasts .
The business forecast is the basis for the enterprise to make the development plan and make the decision . Under the conditions of market economy , the survival and development of enterprises are closely related to the market , and the market is changing rapidly. Only through forecasting and mastering a large number of first-hand market dynamics and development data can the situation be clear, the direction will be accurate, and the correct decisions will be made.
Contents of business forecast
The content of business forecast mainly includes: sales forecast , profit forecast , cost forecast and capital forecast .
1. Sales forecast
One of the central tasks of sales planning is sales forecasting. No matter the size of the company or the number of sales staff , sales forecasting affects all aspects of sales management including planning, budgeting and sales determination. Sales forecast refers to the estimation of the sales quantity and sales amount of all products or specific products within a specific time in the future. Sales forecast is to put forward feasible sales targets through certain analysis methods on the basis of fully considering various influencing factors in the future, combined with the company’s sales performance.
2. Profit forecast
Profit forecast is the prediction and calculation of the company’s achievable profit in a certain period in the future . It predicts the profit level that the company can achieve in the future according to various factors that affect the changes in the company’s profits, or predicts the sales volume or sales that need to be achieved according to the requirements of achieving target profits. Target profit refers to the profit level required by the company during the plan period. It is not only an important goal of the company’s production and operation , but also the main basis for determining the company’s planned sales revenue and target cost. The correct target profit forecast can prompt the company to effectively carry out production and operation activities to achieve the target profit, and evaluate the company’s operating effect according to the target profit .
The company ‘s profit includes three parts: operating profit , net investment income and net non – operating income and expenditure , so the forecast of profit also includes the forecast of operating profit, the forecast of net investment income and the forecast of net non-operating income and expenditure. In the total profit , operating profit usually accounts for the largest proportion, which is the focus of profit forecasting, and the remaining two parts can be forecasted in a relatively simple way.
3. Cost forecast
Cost forecasting refers to the use of certain scientific methods to make scientific estimates of future cost levels and their changing trends. Through cost forecasting, grasping the future cost level and its changing trend will help reduce the blindness of decision-making, and make it easier for managers to choose the optimal plan and make correct decisions.
4. Funding forecast
Fund forecasting refers to the use of special methods to infer the amount and source of funds that an enterprise will need in a certain period of time in the future based on sales forecasts, profit forecasts and cost forecasts, according to the company’s future development goals and considering various factors that affect funds. The process of using the direction and its effect, also known as the forecast of capital demand . Specifically, it includes the demand for working capital , the investment demand for fixed asset projects , and the demand for additional funds.
Predictions have limitations
There is a classic investment book “Walking on Wall Street”. The random walk theory of this book has a great influence on many professionals. But in real life, there are indeed many friends who have correctly or effectively predicted the stock situation. Are they just luck?
Professor Talok said in his “Super Prediction”: “As the results of my research spread, the superficial meaning it contained changed abruptly. What my research has shown is that on “many” of the political and economic issues I’ve raised, the average expert forecast is not much better than a wild guess. However, “many” does not mean all. Experts are most likely to make accurate judgments on short-term problems that can be verified in as little as a year, accuracy drops when they try to predict events longer, and on problems of 3 to 5 years, The level is close to that of a dart throwing chimpanzee.“
This is an important discovery. It sheds light on the limits of professional forecasting in a complex world, and the range of capabilities of a superforecaster. Pay attention to the competency boundary, which is very similar to the circle of competency. But the ability to identify ourselves is not a human forte, and it’s hard to tell which things we can reliably predict and which we can’t.
Predictable something is depends on three factors:
- What we want to predict;
- Predict the distance of time;
- Under what circumstances to make predictions.
We all know that, in most cases, weather forecasts focus on the next two days and are usually very credible.
However, if the weather is predicted to be a week from now, the accuracy will be reduced, and if it is longer than three months, ask the dart-throwing chimp. So, we cannot say that the weather is unpredictable, only that it is predictable to a certain extent under certain circumstances. As far as forecasting goes, knowing where the limitations of forecasting are is a remarkable achievement in itself.
Next on Your Path of Business FortuneTelling
Like most forecasts in the world, the prediction market belongs to complex system forecasting. Unlike simple systems, which can have a model for accurate forecasting, the forecasting of this kind of system can only be a probabilistic forecast. , depending on the content of the forecast, the distance in time and the situation at the time of the forecast.
In the face of an uncertain market, we seek to gain the security of certainty through forecasting. And when we know the limitations of forecasting, we hope to use a more rational attitude to look at the “bowls of noodles” of investment forecasting.
European Center of Oriental Humanities & Asia Business Development invites professionals and business owners to train in the development of basic forecasting skills for both foresight and ephemeral events. In our specialized program master classes we will develop such important skills as:
– forecasting the ecology of the life environment (socio-psychological and economic dimension);
– methods and technologies of business forecasting and making general executive decisions;
– preparation of managers for the implementation of forecasts, means of dealing with the impact on the inevitable processes.
For more information with you requests please contact our Department of MBA Programs & Continuing Education at firstname.lastname@example.org