Forecasting

Guessing. But with intel behind the guesses. Like...what will inflation look like the next 3 quarters? What will Coke's earnings run the next 2 years? Will we still be electing idiots for Congress?

Yeah. Some forecasting is easier than others.

Forecasting is the use of historic data to determine the direction of future trends. Businesses utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. This is typically based on the projected demand for the goods and services they offer.

At its heart then, what is forecasting? One better than...threecasting?

In a financial sense, forecasting isn’t all that different from the crazed, witchy ramblings of a medium in a seance, divining your future dating life...which she intones will be cloudy with a chance of rejection.

Companies forecast future revenues and profits as driven by sales volumes. And the pricing of whatever products they are movin’ out the door. Why? Like...why bother? You sell so many units of your product...what can you do about it?

Well, in practice…plenty. Let's say you won huge discounts in extruded plastic volumes for your Sneeze Guard business: The Snot Thickens...in return for ordering 5 years’ supply. Your supplier loved knowing well in advance what the demand would be for their extruded plastic so that it could negotiate with its unions, its plastic mining contracts, its natural gas supplier to melt down the plastic, etc.

So in return for a lot of commitment…came a lot of discounting. You’ve now committed to buy 5 years’ worth of extruded plastic supplies, no matter what. Like...25 tons this year, 30 tons next, 35 the next, and so on. But after year 2, the economy softens and buffets have decided to cave in to the germs. They just aren't buying enough sneeze guards to warrant your commitment of 35 tons of extruded plastic.

What can you do?

a) Cry
b) Whine and blame Washington
c) Spend money on marketing and discounting to just “get through it”

Yeah, it’s “C.”

You’re on the hook for 35 tons, so rather than have it just pile up in the back of the factory, you lower prices and spend a bit more on marketing, and instead of only needing 27 tons, you stimulate demand for 32 tons. And yes, that's 3 tons less than you really wanted to have to sell, but it’s not terrible...and 3 tons of plastic fits right here in the back of the factory yard. Yeah, that stuff is heavy.

So through forecasting, which lets you know very early the softness in market demand for your sneeze guards, you were able to stave off what could have been a calamitous slow down...or even shut down...in production. And that’s nothing to sneeze at.

Gesundheit.