Imagine that you are project engineer that has been asked to project (forecast) a cash flow...

Imagine that you are project engineer that has been asked to project (forecast) a cash flow for a new project. What would you do for the following:

a. Can the forecasts be biased in any way?

b. If so, in what direction and why do you think that’s the case?

c. How can a manager and/or their firm neutralize the bias?

Expert Solution

a). The forecast can be biased in both the ways Positive or Negative

b).over-forecast (the forecast is more than the actual), or under-forecast (the forecast is less than the actual).

c). Tracking Signal quantifies “Bias” in a forecast. The tracking signal in each period is calculated as follows:

Once this is calculated, for each period, the numbers are added to calculate the overall tracking signal.
A forecast history totally no bias will return a value of zero,
with 12 observations, the worst possible result would return either +12 (under-forecast) or -12 (over-forecast).
forecast history returning a value greater than 4.5 or less than negative 4.5 would be considered out of control.

Normalized Forecast Metric to measure the bias.

metric will stay between -1 and 1, with 0 indicating the absence of bias.
negative values indicate a tendency to under-forecast whereas
positive values indicate a tendency to over-forecast.
Over a 12 period window, if the added values are more than 2, we consider the forecast to be biased towards over-forecast.
Likewise, if the added values are less than -2, we consider the forecast to be biased towards under-forecast.

jeff jeffy answered 2 years ago

What if you were a project engineer that has been asked to project (forecast) a cash...

What if you were a project engineer that has been asked to project (forecast) a cash flow for a new project. What would you do for the following: a. Can the forecasts be biased in any way? b. If so, in what direction and why do you think that’s the case? c. How can a manager and/or their firm neutralize the bias?

imagine you are a network engineer who has been hired to design a network for a...

imagine you are a network engineer who has been hired to design a network for a small company consisting of a headquarters office in Indianapolis, Indiana, and a branch office in Minneapolis, Minnesota. The company has hired you to design and build the network infrastructure from the ground up. Following is a brief summary of the business structure: Indianapolis, IN This office is the headquarters for the company. It has 61 employees divided across the following three departments: • Administration:...

Imagine you have been asked to collaborate on a project with a colleague whose work style...

Imagine you have been asked to collaborate on a project with a colleague whose work style is very different from yours. For example, you like to plan carefully and follow a schedule, whereas your colleague is spontaneous. You like to write thorough drafts that require only minimal revision, whereas your colleague likes to write incomplete drafts and revise heavily later. Based on these differences, you think it would be more efficient and most cost effective for the company to have...

Given that the cash flow forecast is crucial for the success of a project, who should...

Given that the cash flow forecast is crucial for the success of a project, who should be responsible for developing these forecasts? Should it be a team effort, and if so, who should take final responsibility for the accuracy of these forecasts?

Given that the cash flow forecast is crucial to a project, who should be responsible for...

Given that the cash flow forecast is crucial to a project, who should be responsible for developing these forecasts? Should it be a team effort, and if so, who should take final responsibility for the accuracy of these forecasts and why?

Imagine you are a consultant who has been asked to summarize the strengths and weaknesses of...

Imagine you are a consultant who has been asked to summarize the strengths and weaknesses of Agoria, a nation with a pure market economy. Which of the following would you include in your report as weaknesses of Agoria's economy? Check all that apply. - Occupational choices can be restricted. - Firms have no incentive to produce the so-called public goods, such as national defense, because private firms cannot prevent nonpayers from enjoying the benefits of public goods. - People with...

1a. You have been asked to develop a pro forma statement of cash flow for an...

1a. You have been asked to develop a pro forma statement of cash flow for an office plaza. The information given to you is listed below: Property Information: Age 8 years Rentable Space 300,000 sq.ft. # Stories 15 # Tenants 40 Financial Information: Base Rent Avg. $20 per sq.ft. Other Income/Parking $1.50 per sq.ft. Expenses Recoverable from Tenants $2.50 per sq.ft. Current Vacancy equals to 5% of...

You are an analyst at a bank that has been asked to look into a project...

You are an analyst at a bank that has been asked to look into a project that is being undertaken by ABC Corp with a life of 10 years. The project will return cash flows of $2 million every year for 5 years and 4 million for the remaining 5 years after an initial investment of $10 million. The firm has a beta of 0.5 and the expected return of the market is 11%. There are currently 20000 shares outstanding...

You have been asked by an investor to value a restaurant using discounted cash flow valuation....

You have been asked by an investor to value a restaurant using discounted cash flow valuation. For the current year, the restaurant earned pretax operating income of $750,000. Income has grown 2% annually during the last five years, and is expected to continue growing at that rate for the next two years. Net operating working capital increased by $60,000 during the current year and current year capital spending on long-lived assets exceeded depreciation by $75,000. Both working capital and the...

As a geotechnical engineer, you have been asked to conduct experiments that are required to be...

As a geotechnical engineer, you have been asked to conduct experiments that are required to be used in strength and static calculations. If the ground class is not determined and the budget is considered to be unlimited, explain what experiments you choose and why.

Question