Sales Forecasts: Benefits and Limitations

What are the three components of capacity planning in forecasting?

Production, inventory levels, and staffing.

How does sales forecasting help with budgeting?

It helps set realistic revenue targets and manage working capital.

In strategic direction, what decisions does sales forecasting support?

Decisions regarding expansion or capital investment.

What does the phrase 'Garbage in Garbage out' mean in forecasting?

Inaccurate past data yields misleading or incorrect forecasts.

What is an example of an 'External Shock' mentioned in the text?

Black swan events such as recessions or natural disasters.

Define the 'Opportunity Cost' limitation of sales forecasting.

Time and resources spent forecasting could be used for other activities.

Why is inventory level management a benefit of sales forecasting?

It ensures the firm does not overstock or run out of products.

How do black swan events relate to sales forecasts?

They represent extreme external shocks that render forecasts useless.

What is the relationship between revenue targets and cash flow?

Forecasts set targets that allow firms to plan their liquid capital.

Which benefit helps a firm decide if they should open a new factory?

Strategic Direction.