FORECASTING

FORECASTING

Forecasting is the research procedure to discover those economic, social and financial influences governing business activities so a to predict or estimate current and future financial, production and marketing operations. Thus, forecasting is the process of predicting future systematically. The result of this process is known as Forecasting:

Steps/Process











1. Understanding the Problem: First of all, the real about which forecast are to made, should be clearly understand. A manager must know the purpose of forecasting. It helps the managers to probe the relevant information only.

2. Developing the Ground Work: At this stage, the manager understand and use the past data on performance to get a speedometer reading of the current rate and how fast this rate is increasing or decreasing. This will help in analyzing the causes of changes in the past.

3. Selecting and Analyzing Data: There is a definite relationship between the choice of statistical facts & figures and determination of why business fluctuations have occurred. The reasons of business fluctuation will help in choosing the relevant information. After selecting the data, they are analyzed in the light of past changes. Statistical tools can be used to analyze the data.

4. Estimating Future Events: Future events are estimated on the bases of analysis of past data. The manager knows clearly what he expects in the future in the light of overall organizational objective. He should make an estimate of future business from a number of probable trends revealed by the systematic analysis of data. The estimated result can be compared with actual results in the future.

Techniques of Forecasting

Forecasting may be classified into two major categories:

(i) Quantitative (ii) Qualitative.

Quantitative Techniques: In this, various statistical tools used to make data for predicting the future events.

(a) Time Series Analysis:
§ Any regular systematic variation in the series of data, which occurs due to any reason.

§ Cyclical trends that repeat every two or three years or more.

Time series analysis provides initial approximate forecast that takes into account the empirical regularities, which may be expected to persist.

(b) Regression analysis: This is the mean by which we can select among the possible relationship between different variables, which are relevant to forecasting. This also helps in forecasting about where is one dependent variable and several independent variables. The help of computer programming may be sought to solve the regression equation that are very complex and time forecasting.

(c) Econometric Models: It refers to the application of mathematical economic theory and statistical procedures to economic data. In order to verify economic theory and statistical procedures to economic data, economic theorems and to establish quantitative results.

Qualitative Techniques: This technique mainly employs human judgment to predict future. It includes different methods like Delphi method, Brain Storming, Interacting groups, nominal groups etc. that we have read under the topic of group decision-making.