Accurate predictions wield significant influence in determining the outcome of a game.

Welcome
back to the latest installment of my Capsim guide. I'm Dr. Larry Chasteen, sharing insights gathered
from my experiences with the Capsim Foundation Challenge in both undergraduate and graduate
strategic management courses. Capsim's simulation serves as a valuable educational tool, providing
students with a glimpse into the intricacies of corporate management. Many participants in this
business simulation challenge have achieved top rankings in global tournaments.

If you're immersed in Capsim and have explored my previous blog (if not, I recommend starting with
Capsim: How to Win), you've likely embarked on strategic decision-making within your game.
Acknowledging the initial overwhelm that can accompany diving into the simulation, my advice is to
remain patient and foster open communication with your team members. It will become more
manageable over time. The last thing you should consider is abandoning your efforts; you've invested
time and effort into establishing your enterprise and making initial decisions. Persevere; success is
within reach!

Now, let's delve into a crucial aspect of the game — forecasting.

**Understanding Forecasting:**
Forecasting involves predicting future sales based on past data. In Capsim, accurate forecasting
empowers players to make well-informed business decisions, resulting in substantial profits without
resorting to emergency loans.

**Approaches to Forecasting in Capsim:**

Accurate forecasting relies on precise data, primarily derived from the second year of operations and
insights from the inaugural year's performance. Typically, market growth stands at around 10% for
low-tech products and 20% for high-tech products, suggesting a business growth of approximately
15%. Begin by examining the previous year's sales and increase them by 15% as a starting point.
However, as rival teams introduce new products, forecasting becomes more intricate, necessitating
adjustments to your strategy.

*Market Share Approach (Actual vs. Potential):*

\[Market Share × Total Industry Unit Demand × (1 + Next Year's Growth Rate)\]

*Customer-Survey Approach (Future Information):*

\[Product's December Customer Survey ÷ Total Customer Survey\]

Additionally, it's crucial to develop two forecasts:

- **Best-Case Forecast:** Prepare for the optimal scenario to mitigate the risk of stockouts.
- **Worst-Case Forecast:** Anticipate the worst-case scenario to mitigate the risk of emergency
loans.

Refer to the forecasting chapter in the team member guide for comprehensive insights into these
approaches and the best/worst-case forecasts. Furthermore, Professor Jeff Caneen from BYU-Hawaii
provides a detailed forecasting video explaining these techniques.

**Methods for Forecasting in Capsim:**

Forecasting in the initial rounds is relatively straightforward, as most teams operate with one or two
products, making the market share approach effective. However, by the fourth round, some teams may
have expanded their product lines to four or five, necessitating a shift towards the customer-survey
approach.

Maintain a spreadsheet to track customer ratings annually; it provides valuable insights into your
product's performance compared to competitors'. Analyze this data meticulously to gauge your market
share percentage and forecast market growth. Adjust production and inventory levels accordingly. In
instances where product shortages are predicted, prioritize maintaining inventory to capitalize on
selling opportunities and avoid conceding market share to competitors due to stockouts.

Striking a balance between inventory levels is crucial; excessive inventory poses cash flow
challenges, potentially leading to emergency loans. Plan to borrow slightly more than anticipated from
the outset to create a cash cushion of $8 million to $10 million.

I trust this guide equips you with the tools to leverage forecasting effectively in the Capsim
simulation, facilitating your journey to success. Embrace the learning opportunities presented by this
simulation; its challenges mirror those encountered in the real-world business landscape.