Chapter 8: An Innovative, Easy-To-Understand, “Cone of Uncertainty” Approach to Forecasting

Forecasting is important because it establishes the basis of successfully running a business. Decision-makers must realize that the forecast value provided is an estimate with a certain level of probability of that value occurring. In this chapter, we present a few examples of producing forecasts that provide decision-makers with a range of uncertainty using the analytical technique of simulation.

Despite the importance of forecasting, there is not an easy way to craft a forecast that accurately projects future sales by evaluating market conditions, determining competitive forces (Bunnell, 2022; Hachem & Sullivan, 2023; Institute for Strategy & Competitiveness, 2023; Sillup, 2021) and adjusting for impactive circumstances, such as COVID (Balla-Elliott et al., 2022). As part of the quest to be thorough and detailed and make key assumptions that justify a forecast’s projections, numerous methods are being employed, many of which involve several steps, such as Ghost’s (2022) nine methods, Kofoid’s (2022) five accurate techniques or Indeed Editorial Team’s (2023) six methods to predict future sales Adding to this multiplicity of methods is the time-tested, time-series projection of historical data (Bartlett, 2023), the intuitive rationalization-based “gut-feel” forecasting along with numerous contemporary variations of forecasting, such as Holland’s review of Grushka-Cockayne’s crowdscourcing approach (Holland, 2019).