Agroindustrial project analysi

66 AGROINDUSTRIAL PROJECT ANALYSISEVAIUATION OF TECHNIQUE. The project analyst should evaluatethe forecasting technique because each method is appropriate todifferent circumstances. The marketing manager should balancethe cost of the technique against the desired accuracy to selectthe forecasting method. The requirement for accuracy is derivedfrom factors such as the amount of capital being used, the firm'sfamiliarity with the market, the uncertainty of demand factors, andthe degree of risk decisionmakers are willing to take. (An entrepreneurmight be satisfied with lower accuracy than might thebanker considering a loan to the project.)The success and accuracy of any forecasting method is dependenton the reliability of the data. Sophisticated econometricmodels and mathematical techniques cannot correct weaknesses inthe original data. For example, econometric models are no more accuratethan time-series analyses when structural changes are occurringin the economy. 2 0 Project analysts who are not economistsshould not be intimidated by demand equations. Rather, they canexamine data and assumptions and let the mathematical analystsverify the estimating technique. Finally, analysts should recognizethat a product may need different forecasting techniques at differentpoints in the PLC, and that forecasting should be adjusted accordingly.2 1Thus, the criteria for selecting a forecasting method are severaland will depend upon the particular needs, resources, and dataand product situation of the specific user. Among the likely criteriawould be the method's cost, accuracy, skill and data requirements,and speed. As an illustration, these criteria are applied in table 2-6to rank the various forecasting methods discussed in this section.Salient points for project analysisDemand forecasting is fundamental to the marketing analysis.The project analyst should consider the following questions whenreviewing demand forecasting.20. S. Makridakis and S. Wheelwright, "Forecasting: Issues and Challengesfor Marketing Management," Journal of Marketing, vol. 41, no. 4 (October1977), pp. 24-38.21. For a further exposition of this need, see John Chambers, Salinder Mullick,and Don Smith, "How to Choose the Right Forecasting Technique,"Harvard Business Review, vol. 49, no. 4 (July-August 1971), pp. 45-74.