Precise predictions hold significant sway in determining the outcome of a game.

Greetings and
welcome back to the next installment of my Capsim guide. I'm Dr. Larry Chasteen, and I'm sharing
insights derived from my experience with the Capsim Foundation Challenge in my strategic
management courses at both the undergraduate and graduate levels. The Capsim simulation serves as
an invaluable resource for students, offering a glimpse into the intricacies of corporate management.
Many of my students who have engaged in this business simulation challenge have achieved top
rankings in global tournaments.

If you're currently immersed in Capsim and have perused my prior blog (if not, I recommend starting
with Capsim: How to Win), you've likely initiated strategic decision-making in your game. I
understand that diving into the simulation can be overwhelming initially, but my advice is to remain
patient and keep 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 in establishing your enterprise and making initial decisions. Persevere; success is within your
reach!

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

**What is 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 hinges on precise data, primarily derived from the second year of operations and
insights from the inaugural year's performance. Typically, market growth is 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 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 offers 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.