Probabilistic Forecasting for Contractors

Abstract

Firms that perform work on contract to others often estimate their sales by assigning a probability of award to each potential contract, finding the expected value of each contract and then summing these expected values. Our methodology provides a complete probability distribution around the company sales forecast mean with no further data input than that required to obtain the expected value. The full distribution more realistically portrays business prospects, and allows planners and decision makers to engage in more sophisticated probabilistic forecasting and alternatives analysis. The methodology has been programmed for the computer, and modified to allow for rapid and inexpensive calculation of both sales award and operating sales distributions for a large number of contracts.