How do you know if your expert has the right answer?

The frequently utilized formula of lost profits plus continuing expenses might appear fairly straightforward. But the way your expert interprets the business’s historical cost structure and builds assumptions about the period of lost sales can result in dramatically different determinations.

What are the sensitive economic variables?

Sales Forecasting for the Loss Period

Simple linear projections are easy, but in most cases result in the wrong answer. Product mix, backlog, seasonality, and trend all contribute to a proper sales forecast. Utilizing statistical sales forecasting software and regression models can more accurately quantify the lost sales.

Classification of the Business Operating
Expenses as Continuing or Variable

In economics, all expenses are considered variable in the long run. The problem is that for a business interruption period many of the normal operating expenses are necessarily fixed. For a business interruption period many of the operating expenses have characteristics of being both continuing and variable. Using sensitivity analysis on historical sales volumes will tease out and better define the cost as either continuing or variable.

Unreported or Under-Reported Historical Sales

Fair estimates of these sales can usually be made by working backwards from the actual quantity of products purchasedor manufactured for resale.

Loss of New or Expanded Market

Is it pure speculation or measurable loss of a valuable opportunity? Interviews of market participants will normally provide the basis for inclusion or exclusion of this loss component.