Forecasting Sales and Developing Budgets
This paper will synthesize the findings from the Cassar and Gibson (2008) study. Analogies and experiences will also be used to discuss and analyze the study findings. In addition, the relevance of these findings to the relationship between forecasting methods and budget development will also be discussed. Finally, this paper will also make recommendations on how organizations may address the strategic relationship between planning and performance.
A synthesis of the findings from the Cassar and Gibson (2008) study
There are many variables that are used in making forecasts, and these variables include patterns of past sales, ...view middle of the document...
This would also depend upon whether one uses cash-basis or accrual-basis accounting. In other words, you would record revenue when it was earned rather than when it was received using accrual-basis accounting. It appears, based on this information, that cash-basis accounting would be more accurate for forecasting purposes since it records revenue when it was received.
There are also many factors that can affect whether forecasts are reliable that include examples such as determining if the costs of producing products are accurate. This fact would also make a strong case for the use of activity-based costing to determine the actual costs associated with developing a budget for manufacturing products, etc. (Turney, 2008). Perhaps this process would make budgets more accurate and, therefore, more helpful in developing reliable forecasts.
Also, according to Cassar and Gibson (2008), the larger the firm, the more accurate the forecast will be. What this means is that larger firms are likely to be those organizations with more predictable sales that have been in existence for a longer period of time as well, so sales for these companies would also be more predictable, leading to more accurate forecasts. In addition, Cassar and Gibson (2008) also state that the more locations that an organization has, the more accurate the forecast will be as well. This fact also appears to be associated with the amount of time the organization has been in business, as many companies will add locations after they have been in business for a longer period of time, and they will likely have a good idea of the amount of sales that each location can generate.
Use of analogies and experiences to analyze study findings
Many of the Australian companies discussed above may have had new products that were not accounted for in creating forecasts. Forecasting can be affected by many variables other than those mentioned in the above findings regarding a given organization’s product, especially when a product is new. In other words, the more complex the product is, the more variables there are to consider in developing a sales forecast, especially for an organization with a new innovation that has no product history to use to create forecasts. This is especially true of new products in the pharmaceutical industry. It is also likely that the additional variables that will be discussed here were also factors that could have been modified to be included as part of the Australian firms described above to further analyze the results of each of these organizations in the study in order to improve forecasting.
Some of the variables that must be considered regarding the pharmaceutical industry might include consumer awareness of the disease state and the amount of advertising as well as the number of vendors selling similar items (Cook, 2006). Cost is also a factor, as is the propensity for a given physician to correctly diagnose the disease state that the product...