What Is Harper Chemical's Inaccurate Forecasting
Harper Chemical
Jeffrey Gomez
February 5, 2013
Introduction Harper Chemical’s forecasting for its new project called Domanite was very inaccurate. Expenses were estimated with a failure to account for unexpected expenditures, and spending was not regulated well. Sales figure estimates were inflated, and did not account for the difficulty of opening a new market.
Unexpected Losses
It was originally estimated that the sales volume of Domanite would hit 55,000 tons per year by 1983. However, between 1981 and 1985, annual sales of Domanite only hit 8,700, or 46,300 tons short of the original estimates. It was also projected that the Domanite operation would break even in a year and a half and would have a 10% after-tax profit in the fifth year. Neither of these projections came anywhere close to happening. In the first 5 years of operation, the Domanite operation incurred a …show more content…
It appears that the Domanite project made the mistake of forecasting low in nearly every area, as well as having unsupervised and unanticipated spending. There were two major reasons for missing the forecasted budget. The first is a failure to account for unexpected variables. The second is failure to enforce strict budget guidelines, and letting spending get out of hand.
One huge problem demonstrating the latter was the free reign given to laboratory researchers in the research and development department to do whatever they wanted in testing and experimenting on the Domanite. Only limited internal control was demonstrated regulating the type and depth of research that was conducted. Due to this freedom of research work, R&D spending grew by an average of 18% each year for the first 5 years of operation (see Exhibit
Jeffrey Gomez
February 5, 2013
Introduction Harper Chemical’s forecasting for its new project called Domanite was very inaccurate. Expenses were estimated with a failure to account for unexpected expenditures, and spending was not regulated well. Sales figure estimates were inflated, and did not account for the difficulty of opening a new market.
Unexpected Losses
It was originally estimated that the sales volume of Domanite would hit 55,000 tons per year by 1983. However, between 1981 and 1985, annual sales of Domanite only hit 8,700, or 46,300 tons short of the original estimates. It was also projected that the Domanite operation would break even in a year and a half and would have a 10% after-tax profit in the fifth year. Neither of these projections came anywhere close to happening. In the first 5 years of operation, the Domanite operation incurred a …show more content…
It appears that the Domanite project made the mistake of forecasting low in nearly every area, as well as having unsupervised and unanticipated spending. There were two major reasons for missing the forecasted budget. The first is a failure to account for unexpected variables. The second is failure to enforce strict budget guidelines, and letting spending get out of hand.
One huge problem demonstrating the latter was the free reign given to laboratory researchers in the research and development department to do whatever they wanted in testing and experimenting on the Domanite. Only limited internal control was demonstrated regulating the type and depth of research that was conducted. Due to this freedom of research work, R&D spending grew by an average of 18% each year for the first 5 years of operation (see Exhibit