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Business Forecasting

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

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Business Forecasting

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  1. 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

  2. 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 for 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

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

  4. 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/EconFAQ.html

  5. 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 and 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.

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