How to plan and forecast in different organization and industries including pharmaceutical industry.

1. Planning and Forecasting
Prepared by
Rajveer Bhaskar, Assistant Professor, RCPIPER

2. Some Bad Forecasts
 "Everything that can be invented has been
invented."
--Commissioner, U.S. Office of Patents,
1899.
 "640K ought to be enough for anybody."
-- Bill Gates, 1981

3. Some Bad Forecasts
 "But what ... is it good for?"
--Engineer at the Advanced Computing
Systems Division of IBM, 1968, commenting
on the microchip.
 "There is no reason anyone would want a
computer in their home."
--President, Chairman and founder of Digital
Equipment Corp., 1977

4. Some Bad Forecasts
 "I think there is a world market for maybe
five computers."
--Chairman of IBM, 1943
 "We don't like their sound, and guitar music
is on the way out."
--Decca Recording Co. rejecting the
Beatles, 1962.

5. Forecasting
 What is generally the first item to
estimate when starting a business?
 What is the most difficult aspect of
forecasting?

6. Steps in Financial Forecasting
 Forecast sales
 Project the assets needed to support
sales
 Project internally generated funds
 Project outside funds needed
 Decide how to raise funds
 See effects of plan on ratios and stock
price

7. Finance
Department
The Sales Forecasting Process
Marketing
(sales estimate)
Top Management
(policy, strategy)
Production
(capacity, schedules)
Accounting
(financial statements,
depreciation, taxes)
SALESSALES
FORECASTFORECAST

8. Forecasting sales
 Review past sales (five to ten years).
 You can use average growth rate but it may
not give you a correct estimate.
 Use regression slope to compute growth rate.
 Consider changes in economy, market
conditions, etc.
 Improper sales forecast can lead to serious
financial planning issues.

9. Sales Forecast
 Sales forecasts are usually based on the analysis of historic data.
 An accurate sales forecast is critical to the firm’s profitability:
Under-optimistic
Too much inventory
and/or fixed assets
•Low turnover ratio
•High cost of depreciation and storage
•Write-offs of obsolete inventory
•Low profit
•Low rate of return on equity
•Low free cash flow
•Depressed stock price
Over-optimistic
•Company will fail to meet demand
•Market share will be lost
Sales Forecast

10. 94 95 96 97 98 99 00 01 02 03
Time
Sales
Growth Rate
 Forecast future sales based on past sales
growth
Sales Estimates for
next 2 years
Sales Estimates for
next 2 years

11. 94 95 96 97 98 99 00 01 02 03
Time
Sales
Also include the effects of any events which
are expected to impact future sales (new
products or economic conditions)
 Forecast future sales based on past sales
growth
New Product Introduced

12. 94 95 96 97 98 99 00 01 02 03
Time
Sales
Also include the effects of any events which
are expected to impact future sales (new
products or economic conditions)
 Forecast future sales based on past sales
growth
New Product Introduced

13.  Current Assets: Inventory, A/R, Cash
 Fixed Assets: Plant and Equipment
20092009
20102010
Sales Growth Imposes Costs on the Firm
 Will require additional resources

14. What are the affects on the financials?
 Sold off stores
 Borrowed money
 Expanded to new markets
 Out-sourced labor to China
 Lowered retail prices
 Increased advertising
 Purchased inventory management
system