Question

Forecasting is one of the most important aspects of financial planning. Discuss what variables do you think make this exercise most challenging.

Answer 1

Strategic planning requires forecasting to define strategies and make decisions based on the formulated strategies and given resources are allocated efficiently. The future outcomes of a company are estimated through financial planning using historical data and market conditions also external factors help determine the financial status of a company over a given period. A financial forecast uses financial modeling to execute its activities; it is a model which anticipates the performance of a financial asset, portfolio or a project usually relates to accounting or asset pricing etc. The most difficult task in the financial forecast is to predict revenue for a company using historical data, analysis of trends and variable costs are also associated with sales.