Forecasting and CBA

Option 1

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 Assignment 2, 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:

· 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.

· How can we make better use of data (past performance, industry outlook, etc.) to improve our forecasts and resolve disagreements?

· Would performing a sensitivity analysis have helped Management understand the potential variations driven by changes in assumptions?

· After the forecast is complete, describe the communication process you would use to convey results and successes to stakeholders, lenders, and employees.

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