Chat with us, powered by LiveChat chapter 9 | Refine papers
  

Please respond to the
following textbook questions in a MS Word document (upload a single attachment)
for this week’s chapter:

Pages
149-152, Exercises 9.1, 9.2, 9.4, and 9.10.

For Exercise 9.10, feel
free to use MS Excel, or by hand (estimated, but carefully estimated drawings,
etc).

Be sure to utilize
outside references/resources to demonstrate your ongoing study efforts on this
Module’s topics (as appropriate)
FORECASTING 9
Learning Objectives
After reading this chapter, students will be able to

?articulate the importance of a good sales forecast,
?describe the attributes of a good sales forecast,
?apply demand theory to forecasts, and
?use simple forecasting tools appropriately.

Key Concepts

?Making and interpreting forecasts are important jobs for managers.
?Forecasts are planning tools, not rigid goals.
?Sales and revenue forecasts are applications of demand theory.
?Changes in demand conditions usually change forecasts.
?Good forecasts should be easy to understand, easy to modify, accurate, transparent, and precise.
?Forecasts combine history and judgment.
?Assessing external factors is vital to forecasting.

9.1Introduction

Making and interpreting forecasts are important jobs for managers. Sales forecasts are especially important because many decisions hinge on what the organization expects to sell. Pricing decisions, staffing decisions, product launch decisions, and other crucial decisions are based on the organization?s revenue and sales forecasts.
Inaccurate or misunderstood forecasts can hurt businesses. The orga- nization can hire too many workers or too few. It can set prices too high or too low. It can add too much equipment or too little. At best, these sorts of forecasting problems will cut into profits; at worst, they may drive an orga- nization out of business.

137

Economics for Healthcare Managers

The consequences of bad or misapplied forecasts are particularly seri- ous in healthcare. For example, underestimating the level of demand in the short term may result in stock shortages at a pharmacy or too few nurses on duty at a hospital. In both cases, the healthcare organization will suffer financially and, more important, put patients at risk. It will suffer because the costs of meeting unexpected demand are high and because the long-term consequences of failing to meet patients? needs are significant. The best out- come in this case will be unhappy patients; the worst outcome will be that physicians stop referring patients to the organization.
Overestimating sales can also have serious long-term effects. A hospital may add too many beds because its census forecast was too high. This surplus will depress profits for some time because the facility will have hired staff and added equipment to meet its overestimated forecast, and the costs of hir- ing and paying new employees and buying new equipment will substantially exceed actual sales profits. In extreme cases, bad forecasts may drive a firm out of business. A facility that borrows heavily in anticipation of higher sales that do not materialize may be unable to repay those debts. Bankruptcy may be the only option.
Sales and revenue forecasts are applications of demand theory. The fac- tors that change sales and revenues also change demand. The most important influences on demand are the price of the product, rivals? prices for the prod- uct, prices for complements and substitutes, and demographics. Recognizing these influences can simplify forecasting considerably because it focuses our attention on tracking what has changed.

9.2What Is a Sales Forecast?

A sales forecast is a projection of the number of units (e.g., bed days, visits, doses) an organization expects to sell. The forecast must specify the time frame, marketing plan, and expected market conditions for which it is valid. A forecast is a planning tool, not a rigid goal. Conditions may change.
If they do, the organization?s plan needs to be reassessed. Good management usually involves responding effectively to changes in the environment, not forging ahead as though nothing has shifted. In addition, fixed sales goals create incentives to behave opportunistically (that is, for employees to try to meet their goals instead of the organization?s goals). For example, sales staff may harm the organization by making overblown claims of a product?s effectiveness to meet their sales goals, even though their actions will harm the company in the long run. Alternatively, sales managers may bid on unprofit- able managed care contracts just to meet goals.
Whenever possible, a sales forecast should estimate the number of units expected to be sold, not revenues. The number of units to be sold

error: Content is protected !!