Monday, October 27, 2014

Business Forecasting (Target's Credit Card Breach)

Forecasting in business is one necessity that can help to either make or break a company. While forecasting is extremely necessary to predict inventory and future plans, it is often extremely difficult to do. There are many events companies fail to observe when forecasting, and there are also unexpected events that could affect the projected forecast, as we have observed with the tsunami in Japan.

While some businesses decide to ignore or put little to no effort into forecasting, it is one of the most useful tools in successful companies. Every company has a plan to be operating in the future, so one would begin to think why some companies and managers fail to complete this process. This is an important procedure to predict future inventory, outcomes, and possible worst and best-case scenarios.

With this in mind, we can look into a successful company with an unexpected event that altered their planned forecast of financials and sales. Target has been a successful retail company for many years. However, within the year, Target has suffered many problems with customer's credit card information being hacked from their system. In an article titled, "Target gives more bad news as it cuts profit outlook, discloses more theft details" by Andria Cheng, the expected forecast is explained. Before the credit card breach, Target sales were better than expected and were remaining that way. However, with this unexpected event, sales began to drop and projected forecasts began to sway. Now, with this new information, Target has begun to look into a new projected forecast with these estimated damages taken into account. Target began to cut future outlooks and re-estimate holiday sales.

The graph below shows the decline in Target's stock and sales from the first orange dot to the second orange dot. The graph then goes on to show an expected trend for Target's future sales, with a very unstable prediction of ups and downs.

 This article ties into our discussion of forecasting by showing how even top companies can suffer unexpected events and change their predicted numbers and plans. However, although Target may not have accounted for this event in their future, they may have taken into account some unexpected event and the damage it may cause. With this in mind, Target has taken the steps to readjust their forecast and plans for the remaining future.

What steps should Target initially take to re-estimate their numbers? Would Target be best by compiling data on other related businesses? Would intuition/judgement be a good decision to estimate the future sales for Target?

Cheng, Andria. "Target gives more bad news as it cuts profit outlook, discloses more theft details". Market Watch: The Wall Street Journal. 10, Jan. 2014. 27, Oct. 2014.

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