What is the significance of the financial forecast
Forecasts are predictions that result from studies of the market situation, competitive behavior and environmental data. The forecasts also include the extrapolation of trends over the course of the economy from the past into the future. They are part of the corporate planning database. You could call it the building site for the planning building.
The difference between planning and forecasting is that planning contains decisions about what to do or not to do and how to do it. The forecasts also include the scenarios as future behavioral images. A symbolic word for this topic is the keyword weather forecast. You will probably not have heard that at some point a radio or television station announces: The weather is planned as follows tomorrow. Because that would mean that decisions about the weather have been made. The weather forecast for tomorrow is as follows: Based on this assumption, decisions have to be made about what to wear / not to wear, whether an umbrella is needed / not needed ... Then sometimes it turns out that the wrong decisions were made ; because, for example, the forecasts do not come true as announced. So you are always obliged to weigh up alternatives in the if ... then ...
is a theoretically or empirically founded statement about a development or a future situation. There are usually four classes of forecasting methods:
1. Intuitive forecasts (expert judgments)
2. Intuitively structured forecasts (e.g. brainstorming, Delphi method, scenario technique)
3. Inductive mathematical method (regression analysis, trend method)
4. Deductive nomological prognosis (based on regularities).
The forecast of the planning data is the basis of all operational planning. In cost accounting, a forecast is particularly necessary to determine the planned costs. E.g. one predicts the consumption of production factors in consumption functions on which the determination of the planned costs is based. The forecast of external variables is, for example, the basis for determining planned prices. Plan sizes (trend extrapolations) forecast on the basis of past values are often not a particularly useful basis for plan quantities and plan prices. Nevertheless, such trend extrapolations are often carried out; In cost accounting, they are based on, for example, the overhead surcharge rates or normal cost accounting.
A prognosis is an empirically or theoretically well-founded prediction of future situations. It starts from an initial situation and explains the development up to the forecast situation. In doing so, it uses certain forecasting techniques.
1. Term. A prognosis is a statement based on practical experience or theoretical knowledge about a future situation in a qualitatively and / or quantitatively limited field of objective possibilities.
2. Definition of terms
(1) Forecast planning
While forecasting predicts that certain events are likely to occur, planning determines which decisions must be made in order for certain events to be likely to occur. Forecasting is a method of planning.
(2) prognostic diagnosis
Diagnosis means description and explanation of a fact and thus a present situation, the further development of which is described by the prognosis.
3. Types of forecast
According to the scope: forecasts of individual quantities or of recursive or simultaneous systems. According to the nature of the events: qualitative forecasts that only indicate the nature and direction; quantitative prognoses, which indicate either a numerical value (point prognosis) or an interval (interval prognosis) within which the occurrence of the target value is expected with a certain probability. After the forecast horizon: short-term, medium-term and long-term forecasts.
According to the prognosis purpose: information prognoses, which are intended to predict the consequences of certain, already realized conditions and decision prognoses, which are intended to predict the potential consequences of alternative actions. According to the prerequisites for prognoses: sham prognoses which lack the criterion of uncertainty; Conditional prognoses, which assume that certain events, which are not predicted themselves, will remain constant or will maintain their previous development and unconditional prognoses, the statements about future developments of which are not subject to any restrictions. 4. Forecasting methods
(1) Intuitive method
The prognosis is made purely intuitively and emotionally. In this case, too, one relies on certain experience and knowledge of relevant processes and relationships, but when assessing future development, one is guided to a decisive extent by one's own instinct and thus predicts a future development that has a high subjective degree of probability.
Based on a careful analysis of the long-term development tendencies, all conditions that the individual processes imply for the short-term period are worked out completely and in detail.
In a second step, one confronts the developed prerequisites with the available information, short-term indicators, etc., in order to estimate what chance of occurrence the theoretical values that follow from the long-term analysis for the forecast period have, or which of the alternatives is the most plausible . Extrapolation is always possible when experience shows that many changes do not take place suddenly and chaotically, but only gradually.
(3) Econometric models
In the econometric model, the interaction of all variables influencing the future is analyzed with the help of a mathematical system of equations in which behavioral equations, technological, institutional and definitional relationships are contained, and on the basis of theoretical considerations (in contrast to the extrapolation methods, in which only one variable to be forecast is looked at). In the econometric model one still has to estimate the exogenous quantities, but then only mechanical calculation processes are necessary for the endogenous quantities, the implementation of which does not require any special economic knowledge or instinct. Furthermore, the construction of the model forces a more intensive theoretical penetration of the material. In this way, interrelationships and their interdependencies of the entire economic structure or of certain sub-areas can be revealed and taken into account, in other words, the model enables the prediction of related changes to a high degree, in contrast to the isolated forecasts of other methods.
(4) surveys and tests
In the field of economic forecasting, surveys and tests have become very important. As part of the business cycle test introduced by the Ifo Institute in Munich since 1969, business leaders are asked about their opinions, ideas and plans in order to arrive at a meaningful picture of future developments.
With the aid of modern statistical methods, economically significant psychological factors can be quantified within certain limits in the business cycle test.
In socialist economics: prediction of the content and direction of the development of future processes in nature and society. What is meant are scientifically based statements about expected events or facts, e.g. as a basis for economic planning.
scientific statement about future events based on observations and a factual reasoning. A prognosis must be based on the analysis of past observations so that it is empirically founded and does not represent a mere "typing". In addition, it generally requires a logical justification as well as the specification of the conditions under which it is submitted. With this condition one distinguishes the scientific prognosis from the irrational prophecy. The forecasting process can be formulated as a forecasting task that should contain the following important components: Presentation of the forecast object, Search for measurable and, if possible, statistically evaluable data (time series), Design of a forecast model, Application of a forecasting procedure, Critical forecast assessment. A forecast model is a system in which the observed values of the variable to be forecast are linked with one another or with the values of other variables, including certain rules, in such a way that forecast values can be determined as a result. The type of link is determined by the forecast method to be used. Qualitative forecasting methods, with which heuristic forecasts are created, work verbally and argumentatively and, like the scenario technique, only provide a rough description of the possible future development of the forecast subject under alternative framework conditions. If time series data are available from the forecast item, quantitative forecasting methods based on statistics can be used. Depending on the length of the forecast period and the requirements for forecast accuracy, the following variants are available: (1) Short-term forecast (a) exponential smoothing, (b) seasonal adjustment method, (c) autoregressive method (e.g. Box-Jenkins models), (d) multiple regression analysis. (2) Long-term forecast (a) trend extrapolation (* trend estimation), (b) growth and saturation functions. The last step in a forecast process must be the critical forecast assessment. The first thing to check here is whether the forecast model is appropriate to the problem and self-contained (consistent). In addition, the validity of the time stability hypothesis should be proven, which states that the principles of the past can essentially also be assumed for the future. The final assessment of a given forecast can be carried out by comparing the forecast costs with the forecast quality, the quality being measured with statistical error measures based on the deviation of the forecast value from the actual value of the forecast object. Important business application areas include the sales forecast and the material requirement forecast. In the case of economic applications, the economic forecast is in the foreground. Literature: Frerichs, W.IKiibler, K., Gesamtwirtschaftliche Prognoseverfahren, Munich 1980. Hansmann, K.-W., Kurzlehrbuch Prognoseverfahren, Wiesbaden 1983. Mertens, P. (Ed.), Prognoserechnung, 4th ed., Würzburg, Vienna 1981.
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