DARYL CANILLAS PAGADUAN REACTION PAPER

DEMAND FORECASTING AND ITS LIMITATIONS INTRODUCTION The firm must plan for the future. Planning for the future involves forecasting. A FORECAST IS AN ESTIMATION OR PREDICTION ABOUT SITUATIONS WHICH ARE MOST LIKELY TO OCCUR IN NEAR OR DISTANT FUTURE. No businessman can afford to ignore forecasting if he wants to thrive and prosper in his business. The firm has to forecast the future level of demand for its product under different possible circumstances; such as prices, competition, promotional activities and general economic activity. Similarly forecasting will be necessary with reference to costs under changing conditions of availability of raw materials and their respective prices, changing technology, wage rates, labour training and capital acquisition programmes. Forecasting does play a key role in managerial decisions and hence forecasting is emphasized in the study of managerial economics. In view of the foregoing discussion, this then now sustain and maintain the common maxim in business that A REAL BUSINESSMAN IS A HYPEROPIC PERSON NOT A MYOPIC ONE. This means that a businessman in order for him to succeed in the very cunning and competitive world of business, he must be a far-sighted person seeing and planning things ahead of time. He acts like the shepherd of his business, guiding its every steps and its destination. Corollary to such responsibility, he must then be able to ensure by looking forward that the path its business is traversing or whether the path it will traverse is the right path for a greener pasture. The objective then of business forecasting is to minimize risk and the margin of uncertainty in business. Considering now the Importance of forecasting in the business world and/or to any organizational endeavours, many forecasting methods were then developed in order to come-up with a more reliable and effective Forecasting Results. However, it must be noted that amidst all those developments achieved in the field of Forecasting, various limitations on Forecasting are still in existence hence the following discussions.

DARYL CANILLAS PAGADUAN REACTION PAPER

LIMITATIONS OF FORECASTING

a) b) c) d) e) f) DISCUSSIONS CHANGE OF FASHION

CHANGE OF FUSHION LACK OF PAST DATA CONSUMER PSYCHOLOGY, LACK OF EXPERIENCE WORKER FORCASTING BY LESS EXPERIANCE INDIVIDUAL UNECONOMICAL

It must be squarely pointed out that human society is one great dynamic group. Dynamic in a sense that everything changes and nothing seems to remain the same thru time in this society. What might be in-demand today may not be in demand tomorrow. Our society is composed of insatiable individuals who always seek for new things. Corollary to such facts, human development and progress is a constant change and it is a variable that constantly limits forecasting. Change of fashions, trends or style limits forecasting in a sense that these changes could never be predicted, if it can be predicted it will always be minimal in degree. For example, fifteen (15) years ago, recording businesses have been on the peak of their business ventures. They even predicted that such golden age of the recording business will remain soaring up high even for the next 30 years. However, it must be squarely pointed out that about year 2003, the first Ipod developed by the Apple Company which was previously spearheaded by the business and invention genius Steve Jobs was launched for the first time. The main feature of this music gadget is that it allows the user to upload unlimited music and movies on their iphone through its internal microchip memory. As a consequence, CDs and recording tapes were no longer needed. The recording company did not expect such trend or development to occur in such a rapid pace. Hence, they suffered bankruptcy as consequence of the extraordinary decrease of their sales. This is a classic example of how change of trends limits forecasting. Indeed, What lies ahead could never be completely predicted.
2

DARYL CANILLAS PAGADUAN REACTION PAPER

LACK OF PAST DATA It has been said that History repeats itself. Hence, by keeping records of imperative events which had happened from the past, we were given the chance to understand how those past events occurs and relate in to the present situation that we have right now and used the data that might be deduced from this to predict the future. WITH THE PAST, WE WHERE GIVEN THE CHANCE TO TAKE A GLIMPSE OF THE FUTURE. This is the very reason why past data is very imperative to forecasting and the lack of it my post limit to forecasting and may even render such forecasting flimsy in nature for having lack of foundation on the past. Time Series Analysis (Trend Projection) is one of the Forecasting method which greatly rely on the past records available. Time Series Analysis is used to estimate future demand. The Time Series Method is based on obtaining the historical data regarding the demand for the product so as to project future occurencies on the basis of what has happened in the past. The Time Series data are chronologically arranged data from a population at different points of time. For example: demand for steel in India may be plotted for years beginning from 1951 to 2003. Based on the data plotted on the graph, a line or curve is drawn. This helps to establish a trend over a period of time. This pattern is then smoothed to eliminate the effect of random fluctuations and it can then be extrapolated into the future to provide a forecast. The Time Series forecasting models are based on historical observations of the values of the variable that is being forecast. The Time Series data would indicate different types of fluctuations which can be classified as Secular Trends, Cyclical Variations, Seasonal Variations and Random. In view of the foregoing, one could have a thorough understanding now of lack of past records may limit forecasting.

CONSUMER PSYCHOLOGY This limitation pertains to how the consumers think or behave in general. This is very important factor that must be considered in forecasting for trends are brought about by the way consumers think. However, it must be squarely pointed out that one could never read what others have on their own minds. Various methods were developed to overcome these limitations for example the one-to-one interview with consumers or the usual surveys that we have.
3

DARYL CANILLAS PAGADUAN REACTION PAPER

However, whatever data that might be derive from this methods will never be conclusive of whats in the mind of a consumer and doesnt even guarantee that how and what a consumer thinks today will remain the same by tomorrow or the succeeding days to come. This is very subjective in nature, a fact that is very hard to measure.

LACK OF EXPERIENCE WORKER Error must be limited in forecasting in order to insure its effectivity. However, margin of error tends to increase rather than to decrease if the one who will conduct the Forecasting job are inexperience worker. It must be highlighted that forecasting is a very technical endeavour requiring technical knowledge and experience in data gathering, analyzing, and making the best conclusion out of those that gathered. Hence, the purpose of forecasting could be best achieved with experienced workers.

FORCASTING BY LESS EXPERIANCE INDIVIDUAL The advantage of having forecasting by experts individual is the accuracy that these individuals might render in view of the forecasting endeavour. Through their trained minds they know already the Dos and Donts of forecasting and also the different strategies that can be used to ensure its success. Hence, to let a less or a non-experience person to do the forecasting would be the other way around.

UNECONOMICAL Forecasting is not only a time and effort demanding endeavour but also a money consuming one. Forecasting needs various resources to push true and most especially it needs personnel who will do the job. Due to this fact, forecasting may be limited by lack of funds as the job could be paralyzed in the absence of a fund that I might consider as its life blood.

DARYL CANILLAS PAGADUAN REACTION PAPER

FEASIBILITY STUDY
Feasibility Study represents a definition of a problem or opportunity to be studied, an analysis of the current mode of operation, a definition of requirements, an evaluation of alternatives, and an agreed upon course of action. As such, the activities for preparing a Feasibility Study are generic in nature and can be applied to any type of project, be it for systems and software development, making an acquisition, or any other project.

SIX PARTS TO ANY EFFECTIVE FEASIBILITY STUDY:

1. The PROJECT SCOPE The PROJECT SCOPE which is used to define the business problem and/or opportunity to be addressed. The old adage, "The problem well stated is half solved," is very apropos. The Scope should be definitive and to the point; rambling narrative serves no purpose and can actually confuse project participants. It is also necessary to define the parts of the business affected either directly or indirectly, including project participants and end-user areas affected by the project. The project sponsor should be identified, particularly if he/she is footing the bill.

2. The CURRENT ANALYSIS Used to define and understand the current method of implementation, such as a system, a product, etc. From this analysis, it is not uncommon to discover there is actually nothing wrong with the current system or product other than some misunderstandings regarding it or perhaps it needs some simple modifications as opposed to a major overhaul. Also, the strengths and weaknesses of the current approach are identified (pros and cons). In addition, there may very well be elements of the current system or product that may be used in its successor thus saving time and money later on. Without such analysis, this may never be discovered.

DARYL CANILLAS PAGADUAN REACTION PAPER

3. REQUIREMENTS How requirements are defined depends on the object of the project's attention. For example, how requirements are specified for a product are substantially different than requirements for an edifice, a bridge, or an information system. Each exhibits totally different properties and, as such, are defined differently. How you define requirements for software is also substantially different than how you define them for systems. 4. The APPROACH Represents the recommended solution or course of action to satisfy the requirements. Here, various alternatives are considered along with an explanation as to why the preferred solution was selected. In terms of design related projects, it is here where whole rough designs (e.g., "renderings") are developed in order to determine viability. It is also at this point where the use of existing structures and commercial alternatives are considered (e.g., "build versus buy" decisions). 5. EVALUATION Evaluation examines the cost effectiveness of the Approach selected. This begins with an analysis of the estimated total cost of the project. In addition to the recommended solution, other alternatives are estimated in order to offer an economic comparison. For development projects, an estimate of labor and out-of-pocket expenses is assembled along with a project schedule showing the project path and start-andend dates. 6. REVIEW All of the preceding elements are then assembled into a Feasibility Study and a formal review is conducted with all parties involved. The review serves two purposes: to substantiate the thoroughness and accuracy of the Feasibility Study, and to make a project decision; either approve it, reject it, or ask that it be revised before making a final decision. If approved, it is very important that all parties sign the document which expresses their acceptance and commitment to it; it may be a seemingly small gesture, but signatures carry a lot of weight later on as the project progresses. If the Feasibility Study is rejected, the

DARYL CANILLAS PAGADUAN REACTION PAPER

reasons for its rejection should be explained and attached to the document.

It should be remembered that a Feasibility Study is more of a way of thinking as opposed to a bureaucratic process. For example, what I have just described is essentially the same process we all follow when purchasing an automobile or a home. As the scope of the project grows, it becomes more important to document the Feasibility Study particularly if large amounts of money are involved and/or the criticality of delivery. Not only should the Feasibility Study contain sufficient detail to carry on to the next succeeding phase in the project, but it should also be used for comparative analysis when preparing the final Project Audit which analyzes what was delivered versus what was proposed in the Feasibility Study.