Saturday, May 19, 2007

What do you do with all that historical data?

So you have been collecting data for months and months possibly years.  What do you do with all that historical data?

the answer to that question is that you use that historical data to build up a forecasting model.  Forecasting models and business plans are extremely useful tools to help guide you in your planning as well as in preparing you to make decisions on how to operate and improve your business.

One of our sponsors, provides an excellent forecasting software solution.  The general idea is very simple, you accumulate data, you find some relatively easy way to plug it in to a modeling program, you identify the metrics and you start to make some assumptions are also plugged into the model.

Next you run the model and you take a look at the results and attempt to determine if the likely outcome seems possible probable remote and possible and then you begin to fine tune the model when your plan.  You're basically trying to predict the future and determine if the outcomes are what you want to achieve or what you want to avoid.

Either way you need to then go back and refine the data if it's accurate or inaccurate or possibly contains some one-time offense that aren't likely to recur in the future.  They need you to check your assumptions and ensure that they are also accurate and likely to happen in the future.


From there you run the model and see what happens and you prepare for the future, that way as the future actually unfolds you'll be able to anticipate what's going to happen and make your decisions and reactions accordingly with the foresight of understanding all the potential possibilities.  When I was in the military this was referred to as battle planning.  We come up with a battle plan and we come up with multiple different scenarios that might occur throughout the battle and we do tend to come up with are most likely responses to those outcomes, essentially how would we react given options A, B or C.

Now in the heat of battle it is not unusual for the plan to go completely awry.  The good thing about tight forecasting models is that they not only enable you to help plan and predict the future, they also help you learn how to make good decisions when the future begins to unfold.  From your modeling experience you'll have a better appreciation for what can happen or what can trigger an outcome that you desire or do not desire.  You also start to gain an appreciation of essentially what it takes to stack the deck or the results in your favor.  This enables you to maneuver situations to your best advantage in knowing what will help you in the long run and what will hurt and should be avoided.

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