Forecasting vs. Simulation: Business Review

 

What is Forecasting? 


Forecasting refers to the science of prediction; where business data analysts create systems to forecast your short and long term business performance indicators, including profits.

In forecasting, you want to be as exact as possible, so there is no simulation going on actually. What data analysts do here actually is to crunch your long-term (2-5 or 10+ years' worth of business data, if available) to look for patterns and seasonal variations in the data.

A model is created to predict these patterns and is continually refined as the business grows or changes by applying short-term correction factors, which may need to be updated every 6 months to a year.

What is Simulation?

Simulation is quite the opposite of forecasting. While forecasting uses your available business data to predict future business performance, simulation comes into play when there is NO data or insufficient data to make a prediction.



A true analytical science, simulation tells you what you need to know about your business model and performance indicators by developing rigorous models that represent your true business profit design.


How are they Connected? 

Simulation is recommended for small businesses and firms that do not yet have extensive business data to use for forecasting. The results  of simulation and forecasting are essentially the same because simulation works on your current model and tells the future, while forecasting uses the past to tell the future.

The only difference is the source of the data used (past vs. present). Our studies even indicate that simulation may be more advantageous because there is no need to continually apply correction factors (an expensive and time-consuming process) since you can simply plug in current or expected business data and generate actionable results.

Benefits of Simulation & Forecasting for Your Business

• Know your bottom-line
• Observe your profit behavior patterns so you can plan better ahead and be in control
• Tell the future of a business idea without making an initial investment and avoid risk
• Become a better manager

 Growth and Forecasting

As your business grows, however, you become more interested in planning, and want to be as accurate as possible; and since by then you would have been gathering data it makes sense that you switch to forecasting instead of simulation because forecasting proves to be more accurate than simulation as the number of data sets (yearly data you provide) increases.

Cost Implications for Businesses

Forecasting is inherently more expensive than simulation. This is because in forecasting you have: 1. Year-run forecasting (for future months of the present year) 2. Year-on-year (progressive years, applying correction factors in turn) and 3. Futuristic analysis - actually simulating future forecasts of business performance based on historical data and an iterative averaging process.

In simulation, processing requirements are lower since you have a single model and few iterations. In forecasting, you have tons of data that need to be processed prior to the actual analysis - this takes more time and requires more computing, so it is inherently more expensive.

Luckily, forecasting is not required by small businesses until they are at least 5-10 years old, by which time, they should be able to afford it :)

Currently, MDS provides both forecasting and simulation services for businesses. We provide a FREE simulation service for small businesses where we generate profit reports and optimization reports for them based on their current business model. These results are actionable and can be applied to improve business output.

Get started with FREE simulation today by filling out this simple and short form: http://goo.gl/rzPtm


MDS also provides paid simulation reports which go into greater detail to provide a much wider range of analytics options and scenarios, providing businesses with a greater deal of actionable data and insights into areas for growth and optimization.

Paid Simulation Services from MDS cost $500 per case study. This is a one-time fee and will be applied for all later investigations into the SAME case study.

Presently, MDS does NOT provide FREE Forecasting services. Please inquire about our paid forecasting services which cost $2,000 per case study. At MDS, we endeavor to provide clients with the best results and we never compromise on quality, even while providing more affordable services.

Our Forecasting & Simulation services are world-class and well-below the average price range of other providers. You are welcome to investigate. For those interested in paid forecasting & simulation services, please visit www.montydimkpa.com/Forecasting to start the process.


We hope you've learned a great deal from this post, until next time,

Best,

M.