Developing An Econometric Planning Model for the Wood Product Firm

Strategic planning is the process of developing a picture of a desirable plan for a firm’s future. The plan contains a detailed program for attaining the desired goals. The ultimate concern is with the projected profitability of the firm. The process of working through all the cost and revenue calculations implied for each and every alternative economic scenario is a complex project. A formal strategic planning model that allows the planner to move from the economic outlook, through revenues and costs, to net income for a large number of alternative outlooks quickly is presented. The proposed model produces projections of a company’s (or division s) statement of operations for any given economic outlook. The equations are developed from historical data using ordinary least squares and are annual. The model contains one equation for sales and four for costs (direct product, operating managed, strategic managed, and committed and other costs). Net income is calculated as a residual. The methodology is presented first. An example is developed for an actual firm, and the results of the model are presented. The firm presented is a relatively small firm that uses wood materials, particularly particleboard, to manufacture furniture products. This firm’s statement of operations for the period 1977 to 1982 is the output of the model.

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