Auditing, Forecasting,
and Market Research
How They Work Together
The triad of auditing,
forecasting and market research are usually thought of as only attainable using
sophisticated AI software algorithms and technology. The goal of Auditmetrics
is to show that data science does not start with technology but how one
approaches business data analytics with an understanding of the fundamental
principles of statistical analysis. According to John Foreman “…most
people are going about data all wrong. They’re starting with buying the tools
and hiring consultants. They’re spending money before even know what they want,
because a purchase order seems to pass for actual progress in many companies
these days.”
Forecasting
is the process of predicting future trends based on historical data and
analysis. It plays a crucial role in planning by providing insights into
potential market conditions, customer behavior, and resource needs.
Market
Research gathers information about consumer preferences, market trends, and
competitive dynamics. This data is essential for making informed decisions
regarding product development, marketing strategies, and overall business
direction.
2. Auditing,
Forecasting, and Market Research Relationship
three
components are interconnected in several ways:
Data
Integrity: Auditing ensures that the data used in forecasting is accurate and
reliable. By verifying the quality of data sources through audits,
organizations can improve the accuracy of their forecasts. For instance, if an
audit reveals inconsistencies in sales data collection methods, adjustments can
be made to enhance future forecasting efforts.
Informed
Decision-Making: Market research provides valuable insights that inform both
auditing processes and forecasting models. By understanding consumer behavior
and market dynamics through research, organizations can set realistic goals
during audits and create more accurate forecasts that reflect current market
conditions.
Continuous
Improvement: The feedback loop created by these three components fosters
continuous improvement. Audits can identify gaps in forecasting accuracy or
market research methodologies. In turn, improved forecasting techniques can
lead to better-informed market research initiatives that align with
organizational goals.
3. Practical Application of
Their Integration
Integrating auditing, forecasting, and market
research allows organizations to:
·
Develop comprehensive marketing strategies
that are grounded in solid data.
·
Allocate resources more effectively by
understanding projected demand through accurate forecasts.
·
Monitor performance against established
benchmarks using insights gained from audits.
For example, a company may
conduct a marketing audit to assess its current strategies’ effectiveness while
simultaneously analyzing forecasted sales figures derived from recent market
research findings. This holistic approach enables decision-makers to adjust
their tactics proactively based on empirical evidence rather than assumptions.
4. Example of Bringing it Together (excerpted from Springer Book)
Regression and Local Market Area Regression is very valuable in
adjusting predictions using categorical adjustments for various demographics
factors such as geographic region and other characteristics such as gender.
Geographic region can also be a surrogate for income distribution which is
readily available from government published data. For example, there is
available through census data sources that break down income tax collections or
median income by zip code. Such data combined with a company’s sales data is a
good indicator distribution of the socioeconomic characteristics of a
business’ customer base.
The compilation of this
type of socioeconomic dataset requires time, but gaining insight of the
customer base is invaluable. The first step is to set up a dataset from a sales
account with links to customers’ zip code. A summary of sales data by individual
zip code would be very unyielding to interpret. The first step is to group zip
code into broader zip code areas. This is where background research of census
data and a map to develop relevant zip code areas (Table 8.1).
The sales and
sociodemographic research resulted in condensing the data into four geographic
areas. This number was chosen to simplify the presentation of the concept of
using regression to project sales by geographic area. It is most likely that
many more areas would be of value, especially for larger businesses. From a
statistical data perspective, zip codes are categorical data.
Table 8.1 Sales Data by
Zio Code and by Four Geographic Areas
Regression results:
R=.86
R2=.74
Sales = -$30,885 + $47,049 x Zip (Geographic Area number)
Used Excel pivot table to
summarize sales by zip code area
As part of small business forecasting,
it is key to get a picture of the possibilities for selling products or
services in a local market. Looking at local markets will provide information
about the types of individuals who might buy products or services and how
extensive is the company’s geographic reach and what is the competition within
the various market areas.
Create a Customer Profile Next there is a need to determine who
are the people who will buy products or services.
What
age are they?
What
is their income level?
What
is their education level?
What
kind of jobs do they have?
What do they like to do
for entertainment?
It may be too cumbersome and difficult
for a small business to survey for such data. But a small demographically
diverse focus group is a proven way to measure customer opinions. It is set up
in guided or open discussions about new products or current views of the
company to determine reactions that can be expected from a larger population.
The use of focus groups is a market research method that is intended to collect
data through interactive and directed discussions by a researcher. If there are
issues with lagging sales that don’t respond to standard means of marketing,
then arranging for a focus group may be what is needed.
Forecasting
Economic Potential There
is a treasure trove of economic information for market research that is
contained in business accounting systems. But to unlock that, information
requires careful planning. Auditmetrics experience is that standard accounting
system reports are useful, but the level of detail may not be sufficient. In a
business assessment concerning the lack of growth of a new product, the
immediate response of the business manager is usually “let’s increase the advertising
budget,” a typical marketing research response. A review of product sales data
for the period of time before and after the initiation of the product was
conducted. A random sample was selected to pull records to interview employees
and customers. The results indicated staff were not familiar with the
requirements of the new product that unfortunately led to customers to be
confused. In an audit it was found that there was an unusually high number of
product returns. More training of employees is what helped in increasing sales.
Fortunately, this assessment was done quickly enough to avoid the company
having an image problem.
Routinely Sample Accounts
to Monitor Business Activities Many business managers complain that selecting account
samples takes a lot of time. It is better to sell rather than sample. There is
nothing wrong with pushing for more sales as long as there are not some
unforeseen barriers.
What helps is to make inroads on the
time issue. Regular timely random samples allow the business manager to deal
with small workable subsets of account data representative of the total book.
There is no need to use the gold standard of 3% which would require a fairly
substantial random sample. The other time saver is the Auditmetrics AI
assistance software feature. This makes it possible to rapidly generate a
random sample by simply deciding on the desired margin of error and test
different number of strata. The business manager can make more rapid forecasts
using MS Excel in
Total Process Overview The overall process in conducting forecasting and market
research is to:
1.
Start with a random sample
of accounts.
2.
From there use regression
to project revenue and expenses.
3.
Also add to the account
data pertinent variables such as geographic and socio-demographic data.
4.
Set up a mechanism to
obtain customer ratings using Likert scales.
Step 4 should be part of a total
package to obtain customer loyalty. To truly build this loyalty, companies need
to move from transaction interaction with their customers to building company
customer relationships. The first step in building these relationships is
engaging with customers beyond basic one-way dialog. Customers don’t feel
valued when it takes undo time to contact the business they patronize. At the
same time, sending out mass text messages without a prompt response will also
not give customers a satisfying feeling either. Correct proactive outreach can
help organizations maximize productivity, customer satisfaction, and
contributions to the bottom line.
Though much discussion in this book involved quantitative
measurements structured to act as part of a business performance monitoring
process. Is it worth it? The quantitative methods will expand control of
day-to-day operations. Also, when seeking funding for current operations and
new business plans, the quantitative methods discussed follow both AICPA and
IRS standards at a level of statistical sophistication that usually is
available only to large corporations.
5. Conclusion: A Synergistic Approach
In
conclusion, auditing, forecasting, and market research work together
synergistically to enhance organizational effectiveness. By ensuring data
integrity through audits, leveraging insights from market research for informed
decision-making, and utilizing accurate forecasts for strategic planning,
businesses can achieve greater success in their operations.
6. Resources for this Discussion
Auditmetrics Small
Business Power Series books available on Amazon:
Both Kindle and Paper Bound Available
Statistical Audit
Automation
Applying
Artificial Intelligence Techniques
ISBN:
9781973281016
Forecasting Revenue and Expenses for Small
Business Using Statistical Analytics
ISBN: 9780578797250
Market Research for Small
Business
Using Statistical
Analytics
ISBN: 9780578813356
7. Value Added in Healthcare
and Public Health
Value added is the
extra value created over and above the original value of something
• For private business it is usually the
products sold to the consumer
• It
is the difference between a product final selling price and the direct and
indirect
expenses incurred in providing that product
In healthcare and
public health, the challenge is how to measure value added
•Research into organizations that have
achieved better health outcomes while often
lowering costs suggests a strategic framework
for value-based public health and
healthcare
implementation
•Focusing on health outcomes aligns how
patients experience their health with links to
the investment
incurred
•This
is the basis of cost effectiveness and cost benefit analysis of public health
and
healthcare programs
Also available on Amazon:
HealthLink Wellness: Science for the Individual
ISBN:9798365285866