Business planning often proves to be a core factor considered during the decision-making process in businesses. In order to come up with an all-inclusive business plan, two approaches are essentially utilized: qualitative and quantitative forecasts.
In qualitative forecasts, information from sources such as sales representatives is utilized while in quantitative estimates, past data is utilized to predict the future. These approaches come with their limitations that may result in an incorrect business forecast. Here a few limitations faced during business planning.
Data collected in qualitative forecasting is usually obtained from different departments in your business. It may come from your sales representatives or even the consumers of your product. Employees that do not usually cooperate across the different departments or are championing their own opinions may give biased results.If sales representatives do not receive incentives for achieving their sales objectives, they may provide lower scores for you to see the need to motivate them with rewards.
Consumer surveys may equally be unreliable, as consumers often give information depending on their mood. They may decide to tell the sellers what they want to hear, like promising to buy a certain quantity of the product later than failing to follow up on their promise. The information provided for demand forecasting thus ends up being incorrect.
Limitations of Economic Predictions
Quantitative forecasting is based on past information and statistics. This approach to forecasting often includes complex economic data and the impact of the leading indicator series. The leading indicator series mainly refers to information on money supply, stock prices and unemployment insurance claims.
This data is thought to be more practical and reliable as it is highly mathematical. However, it makes the critical assumption that the future can be predicted from its historical trend. In the event that market variables alter unexpectedly, this method becomes considerably less reliable.
Time and Cost Factors
The information needed to come up with a formal business plan is usually a lot. The time and expenses incurred during the collection, organization and interpretation of such information is equally a lot. One must take care to not overspend on coming up with a business forecast such that it ends up outweighing the benefits you hope to get from the estimates.
Business planning may encounter human limitations, economic prediction limitations and time and cost constraints that might derail your business forecasting efforts. Put this into consideration when carrying out your projections.