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Sensitivity analysis and contingency planning

1. What are the ramifications if one or more of your projections/forecasts do not hold true? What will you do if, during implementation, you find that you overstated or understated your projections?

2. How does sensitivity analysis relate to contingency planning? What are a couple risk mitigation strategies that you could implement to de-sensitize these variables?

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Strategic Plan Questions
1. What are the ramifications if one or more of your projections/forecasts do not hold true? What will you do if, during implementation, you find that you overstated or understated your projections?

Forecasting means estimating the future values. It is an essential tool in decision making process. The financial forecasts detail the financial aspects of the corporation. There can be a situation where the forecasts may be incorrect. It can be due to :

? Information lags can lead to using old information where newer information is available, so that the new trend is spotted later.
? Over reliance on one source without confirmation from other sources can give rise to local distortions of the information.
? Conversely if too many inaccurate sources are used they may incorrectly weight the resulting forecast.
? Changes in purchasers' behaviour can occur for a number of reasons, but the ones, which should not be a surprise, are technology changes, dissatisfaction with your product or service or changes in competitors' behaviour (which you should know or at least anticipate).
? The models may be inaccurate
Implication of incorrect projections
Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Financial Statements is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources. It is also used to help management to know the performance of organization. The benefit to the of Ethical financial forecasting is that it will help in promoting the transparency and strengthening the relationship with the shareholders and the prospective investors. Some in the industry believe the practice of management offering a picture of how a company may perform in the future helpful.
But there can be misleading earning guidance due ...

Solution Summary

This explains the concept of sensitivity analysis, contingency planning, projections and forecasting

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