× back
Next Topic → ← Previous Topic

Forecasting

Features of forecasting

Process of forecasting

  1. Thorough preparation of foundation → the very purpose of thorough preparation of a foundation is that the forecasting is based on the foundation.
  2. Estimation of future → the brightness of future period can be estimated in consultation with the key personnel & it may be communicated to all the employees of business unit.
  3. Collection of results → relevant records are prepared & maintained to collect the result.
  4. Comparision of results → the actual results are compared with estimated results to know deviations. This will help the management to estimate the future.
  5. Refining the forecast → the forecast can be refined in the light of deviations which seem to be more realistic.

Importance of forecasting

  1. Pivot role in an organization → many organization have failed because of lack of forecasting or faulty forecasting. The reason is that planning is based on accurate forecasting.
  2. Development of a business → the performance of specified objectives depends upon the proper forecasting. So the development of a business or an organization is fully based on the forecasting.
  3. Co-ordination → forecasting helps to collect the information about internal and external factors. Thus, collected information provides a basis for co-ordination.
  4. Effective control → Through forecasting, management can ascertain the strengths and weaknesses of subordinates or employees.
  5. key to success → all business organizations are facing risks. Forecasting provides clues and reduce risk and uncertainties. The mangement executives can save the buisness and get success by taking appropriate action.
  6. Implementation of project → many entrepreneurs implement a project on the basis of their experience. Forecasting helps an entrepreneur to gain experience and ensures him success.
  7. Primacy (foremost) to planning → the information required for planning is supplied by forecasting. So, forecasting is the primacy to the planning.

Advantages of forecasting

Limitations

Methods of forecasting

Regression Analysis

  • Regression analysis is used to find out the effect of changes of the relative movements of two or more inter-related variables. In the modern business conditions and situations, number of factor are responsible for the changes made in the variables.
  • For example , if we take two inter related variables viz. cost of production and profit, there will be a direct relationship prevailing between this two variables. It is possible to have an estimate of profit on the basis of cost of production, provided other things remain the same.

Business barometer

  • Index numbers are used to measure the state of business conditions between two or more periods. Business trends, seasonal fluctuations, and cyclical movements are studied with the help of index numbers.

Input and output analysis

  • Under this method, a forecast can be made if the relationship between input and output is known . At the same time, the input requirements can be forecast of the basis of output. In other words, input can be determined on the basis of need of output.

Survery method

  • Field survey can be conducted to collect information regarding the attitude of people.

Time series analysis

  • This method is quite accurate where future is expected to be similar to the past. Time series analysis can be applied. Only when the data are available for a long period of time.

Delphi Method

  • Rand corporation has developed the Delphi method initially in 1969 to forecast the military events. Then, it has been applied in other areas also.
  • Delphi method is useful when past data are not available and where the past data don’t give an indication for the future events.