Forecasting |5 Importance of Forecasting| 6 Powerful forecasting techniques for 2021 Business
What is Forecasting?
Forecasting is the process of predicting future conditions that will influence and guide the behavior and performance of the Organisation. Forecasting refers to the analysis of past and current situations to get the required data and clues about future trends in the business environment.
Definition of Forecasting
According to Glueck, “Forecasting is the formal process of predicting future events that will significantly affect the functioning of the enterprise”
Planning and Forecasting?
- Planning and Forecasting are interconnected with each other. Planning focus on the future which is highly unpredictable. So, planners have to make an assumption on future events.
- In order to make correct assumptions predictions of future events is essential. Forecasting is the primary source of planning which leads to decision making.
- Forecasting is a prerequisite to planning. Without forecasting, planning will be a waste of time.
- A business must predict their competitors, technology, social and political conditions to forecast and plan.
- Planning and forecasting are concerned with the future.
- Planning is more comprehensive and it includes many elements and sub-elements to come to a decision of how has to be done, what has to done and when has to do. Forecasting involves estimates of future events and provides parameters for planning.
5 Importance of Forecasting
Forecasting is the essence of planning. The future is determined by forecasting.
- Planning: Forecasting gives primary facts and correct information for effective planning. It improves the quality of managerial level decisions in various ways. The forecasting helps the management to analyze the trend of the market and work accordingly. The forecasting helps to identify the future demand patterns in which management can have a profitable product mix. Forecasting brings unity of purpose of planning
- Co-ordination: Anyone at any level can participate in the process of forecasting. Regular interaction among members brings unity and corporation among members. Forecasting helps the department to work together for specific tasks. So, we will create new ideas and find new ways to face the situation.
- Control: forecasting provide control over the situation by giving the right direction at the right time. It is more of a statistical way of analyzing the way. The organization knows the weakness of the forecasting process and take suitable action to overcome the problem. Forecasting shows where the situation has to be controlled and where the control is lacking at its maximum level. From that step, the areas can be easily identified and necessary steps will be taken to make the control effectively.
- Overall Development: Forecasting requires the team to look ahead, think through the future, and improve they’re overall forth. The team automatically develops the habit of collecting, analyzing and interpreting data instead of depending only on intuition. Forecasting depends on the reliability of the information. The team should be more focused on the analytics of the data.
- Facing new challenges: forecasting provides clues about the future. With help of the knowledge, managers can save the organization from the impact of the trade cycle and other threats. Without forecasting, external forces may cause huge damage to the organization and opportunities to solve the problem or grow the company might be lost.
6 Forecasting techniques
We have various forecasting techniques which you need to learn
- Time series analysis- A time series is a series of data points indexed (or listed or graphed) in time order. Most commonly, a time series is a sequence taken at successive equally spaced points in time.
- Extrapolation- Extrapolationinvolves making statistical forecasts by using historical trends that are projected for a specified period of time into the future.
- Regression analysis- It is a method to find out relative moments of two or more interrelated series. Computer programming is used to estimate the dependent variable
- Input-output analysis- This method is commonly used for estimating the impacts of positive or negative economic shocks and analysing the ripple effects throughout an economy.
- Econometric model- Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. More precisely, it is “the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference”
- Historical analogy- This forecasting is based on some analogous conditions elsewhere in the past.
The forecasting helps not only in planning but in the entire process of decision-making.
The needs and importance of forecasting have increased with the increasing complexity of the business environment as a whole.