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Chapter 4

This document discusses considerations for building sensitive forecast models and common forecast assumptions in Python. It explains that assumptions are best guesses based on available data, set at the beginning of a forecast process to drive the forecasting. Different types of assumptions include probabilities, market sentiment, and demand and supply. The document provides examples of working with paired data and defining functions for dependencies or sensitivities in Python forecasts. It also covers explaining forecasting dependencies and sensitivities, and working with variances and gap analysis in the forecasts.

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Luca Farina
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76 views

Chapter 4

This document discusses considerations for building sensitive forecast models and common forecast assumptions in Python. It explains that assumptions are best guesses based on available data, set at the beginning of a forecast process to drive the forecasting. Different types of assumptions include probabilities, market sentiment, and demand and supply. The document provides examples of working with paired data and defining functions for dependencies or sensitivities in Python forecasts. It also covers explaining forecasting dependencies and sensitivities, and working with variances and gap analysis in the forecasts.

Uploaded by

Luca Farina
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Building sensitive

forecast models and


common forecast
assumptions
F IN AN CIAL F ORECAS TIN G IN P YTH ON

Victoria Clark
CGMA Financial Analyst
Considerations when forecasting
Correctly interpret data

Account for changes in data

Account for interlinked variables


Dependencies

Sensitivities

Set assumptions

FINANCIAL FORECASTING IN PYTHON


Assumptions
"Best guess" based on data available

Set at the beginning of a forecast process

Used to drive forecasting

Can be directly controlled

Can be indirectly controlled


Outside control of company

FINANCIAL FORECASTING IN PYTHON


Different types of Assumptions
Probability
Weighted

Market sentiment

Demand and supply

FINANCIAL FORECASTING IN PYTHON


Working with pairs in Python
Using Combined Lists

Outcome Probability (%)

1 30

2 20

3 50
 

outcome_probability = ['1|0.3', '2|0.2', '3|0.5']

FINANCIAL FORECASTING IN PYTHON


De ne a Python Function
De ne a dependency or sensitivity formula

Prevent duplication of work and errors

def assumption1()
if marketsentiment = 0.3:
sales + sales*0.1
else
sales

FINANCIAL FORECASTING IN PYTHON


Let's practice!
F IN AN CIAL F ORECAS TIN G IN P YTH ON
Dependencies and
sensitivity in
nancial forecasting
F IN AN CIAL F ORECAS TIN G IN P YTH ON

Victoria Clark
CGMA Financial Analyst
Explaining forecasting dependencies and
sensitivities
Interlinked variables

Changing one variable has a knock-on effect on


other variables

FINANCIAL FORECASTING IN PYTHON


Working with dependencies and sensitivities in
Python
if x = 0:
x_costs + y_costs
else
x_costs

Expect rush orders

Increases delivery costs by 10%

if month = December:
delivery_costs + delivery_costs*0.1
else
delivery_costs

FINANCIAL FORECASTING IN PYTHON


Let's practice!
F IN AN CIAL F ORECAS TIN G IN P YTH ON
Working with
variances in the
forecast
F IN AN CIAL F ORECAS TIN G IN P YTH ON

Victoria Clark
CGMA Financial Analyst
What are variances?

FINANCIAL FORECASTING IN PYTHON


A gap analysis

FINANCIAL FORECASTING IN PYTHON


Gap analysis and alternative forecasts
rollingforecast1 = 1200

# First 6 months
sales = 300

# The first dependency has 120 units


dependency1 = 120

units = 30

expected_units = 45

# The adjusted dependency


dependency2 = units + expected_units
dependency

75

FINANCIAL FORECASTING IN PYTHON


Congratulations!
F IN AN CIAL F ORECAS TIN G IN P YTH ON

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