CHAPTER 5 - FORECASTING Case Study: World's largest nickel mining company (30% market share) with nickel mines in Canada does 10 yr. forecast in 1990 for: world nickel sales, nickel prices, competition and its own market share, production costs (labor, extraction, transportation, etc.). Based on forecast, it invests $1B in Guatemala and Indonesia to take advantage of expected, growing market for nickel. Was investment profitable? Depends on forecast – will take 7-10 years to assess investment, based on actual outcomes vs. forecast. Nickel case illustrates the importance of forecasting. Remember: successful firms are constantly engaged in long term strategic planning, even 10 years in future, which involves forecasting. Example: FDA approval.
FORECASTING WITH TIME-SERIES MODELS Using historical, time-series data to forecast (predict) the future, i.e. extrapolate past trends into the future. Examples: Using time-series data for GDP, auto sales, interest rates, stock prices to predict ..