Risk management - Business forecast
Business forecast
Type of operation
If you sell high volume similar products you can build up a data base which is statistically useful this is not an option for project based businesses.
Activity
All businesses will need to assess any future activity. Without this, accurate plans can not be generated, decisions on investments will be weak and control will be impossible.
Any business should be able to consider the level of activity for the next financial year.
This might be summarised as:
- A list of current projects (that is in progress and contracts already won)
- A list of potential projects in the future where contracts are not yet signed.
Some opportunities will arise out of the blue and will be hard to predict.
A method of assigning a single value for the total revenue and costs leaves little room for error.
It is just as easy to approach the problem using techniques we have already covered.
Timing
We will show more detail in how to assess these projects in terms of cash flow, timing and profit [see business schedule risk].
Correlation
Remember that many projects will be linked by underlying events. These will need to be considered and allowed for appropriately in the risk management software in terms of correlation.