Business Forecasting

Definition: Business forecasting implies a prediction of future events considering all the past and present possibilities, i.e., to make a successful business forecasting the events of past and present should be reviewed properly. It will help the company to solve their future problems more effectively.

Thus, we can narrate business forecasting as a systematic manner of predicting future possibilities and problems that the business can face.

Elements of Business Forecasting Process

Following are the elements of business forecasting:

1. Preparing Groundwork: The company needs deep analysis and investigation of the economy and share market structure. They need to analyse the past and present performance or growth of the company in an industry to create a groundwork for future predictions. This groundwork preparation should be done thoroughly as it becomes a base of the business forecasting process.
2. Initiating Future Business: Any assumptions for the future can be made on the basis of the past information along with the research efforts made by the responsible persons of the management. All the responsible persons holding the responsibility to meet these forecasts need to be actively participated in understanding the past and present of business.
3. Actual and Estimated Result comparison: Forecasting made in previous years of business helps in comparing estimations made by the experts and the actual results. If the predictions and actual results have variations the company should find the reasons behind the variation.
4. Improving Forecasts: Like other factors of the business, forecasting techniques should also be improved from time to time according to the situations that have changed while evaluating a business. If any variable changes, the forecast should also be moderated considering all such factors. These revisions of improvements enhance the forecasting process, as the efficiency of forecasting always increases with ascertaining experiences.

Business Forecasting Techniques

To select the forecasting techniques a manager should review some factors like the purpose of forecasting, time-period for forecasting, degree of desirable accuracy, etc. As forecasting is totally dependent upon the guessing regarding future considering past and present records there might be chances of errors also, to minimise such risks companies uses several forecasting techniques to meet the predicted results much accurate as of the actual results.
Every technique has its advantages and disadvantages, the manager has to choose it wisely which technique is best suitable to solve his problem. The two techniques which are primarily used for the purpose of forecasting are as follows:

1. Qualitative forecasting Techniques

There are certain factors that cannot be measured in quantitative terms. To measure them qualitative techniques are used by the companies. In such a technique using past records is not much relevant, in fact, this technique is used mainly when past data is not available or incomplete information is available. The judgement ability of humans is used in this technique to turnout the qualitative technique into a quantitative technique. Some of the qualitative techniques of business forecasting are as follows:

• Dolphi Technique: In this technique, the opinion of the experts is taken who have the appropriate experience of the forecasting variables. This technique is used to predict future technological developments along with the sales and demand forecast. It is less expensive than other qualitative techniques as it does not require any statistical tools to bring in the viewpoint on forecasting.
• SalesForce Estimates: In this technique, the opinions of the sales force are taken into consideration. As they are the persons who directly deals with the customers; thus, they can more accurately estimate the future sales in their working area, i.e., in their sales territory. By merging the opinions of the sales force and the sales manager predictions for future sales are evaluated. Although predictions based on salesforce opinion are generally for the short-term as it is assumed that they are not much capable to make long-term predictions.
• Customer’s Expectations Method: In this technique opinions of the customers are directly taken about their plans for future purchases. For this sales representative may use various surveys, direct mail questionaries, etc. therefore, this method is also known as the survey method.

2. Quantitative Forecasting Techniques

These techniques are the statistical techniques of forecasting in which changes to the patterns are observed; thus, in this technique historical data plays a relevant role to measure the changes. Following are some of the quantitative techniques:

• Trend Analysis Technique: This technique by its name defines that it works on the trends such as seasonal variations, cyclical variations, and various other random variations. Over a period of time by following the trends, future trends can also be predicted; however, this technique is used when the data is available for a long period and trends are stable.
• Business Barometers Method: In general, barometers are the instruments used to measure the atmospheric pressure, similarly, in business forecasting to measure the economic state between two periods, index numbers are used. By combining the two or more indexes it can be calculated that the economy is heading in which state.

Characteristics of Business Forecasting

Following are some of the characteristics of business forecasting:

1. Describes Future Possibilities: Forecasting helps in revealing all the future possibilities in a business. In the process of planning, forecasting plays a significant role to formulate the future course of action.
2. Rely upon Past and Present: Forecasting is nothing but a prediction of the future which can be done only by reviewing past and present to make future decisions that affect the various functions of the company.
3. Uses Various Techniques: Business forecasting uses various statistical techniques to analyze the various factors of business such as qualitative and quantitative techniques. However, above all techniques, personal experiences help the most in predicting accurate results.

Uses of Business Forecasting

Forecasting can help the businessman in several ways, some of them are as follows:

1. Helps in Making Planning: Planning is the foremost step of an organization to achieve its objectives or targets which involves various factors and amongst those factors forecasting is the most important factor that merges with planning to achieve success. Both go together, i.e., without efficient forecasting, successful planning cannot be done.

Forecasting helps the management in understanding the weakness and risks which the business might have to face in future. Whether it is short-term or long-term planning it requires economic condition changes estimations. Thus, we can conclude that forecasting is most promptly used as premises for planning.

2. Establishes Coordination: The process of forecasting requires the efforts of all the concerned departments of the organization which establishes coordination amongst them and creates a team spirit. Forecasting helps the departments to adopt the company’s supply chain strategy.

3. Empowers Strategic Changes: Business forecasting facilitates strategic changes such as the expansion of business, new market development, etc.

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