An article published in The Irish Times by Olive Keogh cites the following comments by Patrick Gibbons, professor of strategic management at the UCD Michael Smurfit Graduate Business School: The one thing we know about most forecasts is that they are wrong. At a minimum, in making forecasts, firms should think about a range of key parameters, such as market shares, growth rates and so on, as opposed to single-point estimates. The amount of resources devoted to forecasting are predicated on how easily reversible the decisions are. Where investment requirements are low, the investment/capital is extremely flexible, or the payback period is very fast, then extensive market forecasting may not be required. Where investment requirements are high, capital is extremely specialized and inflexible, and where the lead-time to bring investment on-stream is very long, then more extensive forecasting is necessary.
Questions:
1 How can more extensive and less extensive forms of forecasting be applied to appraising capital investment projects?
2 What is the difference between estimates based on a range of key parameters and single-point estimates?