Homework: Forecasting and CBA
Option I
As we are discovering, Cost Benefit Analysis is based on assumptions about financial forecasts of future cash flows and expenses. Since the future is unknown, getting consensus on inputs can often be the most challenging part of running a Cost Benefit Analysis.
In this Homework, we find five colleagues who each have very different views of the future. Referencing our readings this week and drawing on your own personal experiences, answer the following questions:
i. Why do skilled professionals working in the same business often have significantly different forecasts and views of the future? Share an example from your own work experience where your colleagues had very different forecasts for the same item.
ii. How can we make better use of data (past performance, industry outlook, etc.) to improve our forecasts and resolve disagreements?
iii. Would "sensitivity analysis" have helped Management understand the potential variations driven by changes in assumptions?
iv. After the forecast is complete, describe the communication process you would use to convey results and successes to stakeholders, lenders, and employees.
- OR -
Option II
As you're learning in this Homework, a key technique in managerial accounting/finance is the use of "Cost Benefit Analysis" to help management make better business decisions.
i. Define this approach in your own words and discuss 2 applications of this concept in your current work environment (examples might include make vs. buy, plant location, new product or packaging, downsizing, acquisition/divestiture, etc.).
ii. Discuss a variable or assumption within the project where the data was difficult to obtain - and what you did to develop a reasonable assumption for the project economics.
iii. Additionally, share or create one example where using financial data and cost benefit analysis that did, or could have, led to a better decision.
Format your homework according to the following formatting requirements:
i) The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
ii) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
iii) Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.