Forecasting as a Statistical Tool: Importance and Use; In the Light of Case Study (Using Least Square Method)

By Rishab Lohan II Year B.Com. ,LL.B (Hons.) Roll Number 144/11 To Dr. Gulshan Kumar

University Institute of Legal Studies (UILS) Panjab University

RESEARCH METHODOLOGY

AIMS AND OBJECTIVES The aim of this project is to study forecasting, its importance and use. It also aims in forecasting the sales of a company using least square method

RESEARCH QUESTIONS The researcher has tried to answer the following questions during the course of the project, (i) What is Forecasting? (ii) Importance of Forecasting. (iii) Introduction Least square method

SCOPE AND LIMITATION The scope of the project is limited to studying the importance and us of forecasting and explaining it with the help of a case study. The researcher has not dealt with all the methods of forecasting due to sheer number and complexity. The focus of this project to understand the least square method as a measure of forecasting.

MODE OF CITATION The researcher has followed a uniform mode of citation.

SOURSEC OF DATA The researcher has relied only on secondary sources such as internet for data collection and books for analysation of the data.

CHAPTERISATION The project has been divided into the following chapters, Chapter 1 explores the Forecasting its importance. Chapter 2 explores the Least square method. Chapter 3 explains forecasting with least square method with the help of case study

What is Forecasting Fore.an ancient term of warning bearing the threat of harm at worst, and uncertainty at best, to those within potential range... Cast serving up a projectile to the unseen and usually unknown beneath the deceptive surface = Forecast.... a warning to those who use it... a confession of uncertainty (or deception) by those who create it... a threat of harm to those in its path

The quantitative forecasting methods can be studied as independent modules. But then if it is studied with other tools like averages and dispersion, it will be more meaningful. Predicting, with some measure of accuracy or reliability, what those levels of demand will be is our subject.

Forecasts are more than simple extrapolations of past data into the future using mathematical formulas, or gathering trends from experts Forecasts are mechanisms of arriving at measures for planning the future. When done correctly, they provide an audit trail and a measure of their accuracy.

Not only do forecasts help us plan, they help us save money. For example, one company reduced its investment in inventory from Rs. 28 million to Rs. 22 million by adopting a formal forecasting method that reduced forecast error by 10%. This is an example of forecasts helping product companies replace inventory with information, which not only saves money but improves customer response and service.

Quantitative time series forecasting methods constitute the core of forecasting in quantitative method course. They are based on some assumptions. They are: 1) past information about the variable being forecast is available, 2) the information can be quantified, and 3) it is assumed that patterns in the historical data will continue into the future. If the historical data is restricted to past values of the response variable of interest, the forecasting procedure is called a time series method.

A very important use of time series data is towards forecasting the likely value of variable in future. In most cases it is the projection of trend fitted into the values regarding a variable over a sufficiently long period by any of the methods discussed latter. Adjustments for seasonal and cyclical character introduce further improvement in the forecasts based on the simple projection of the trend. The importance of forecasting in business and economic field lies on the account of its roles in planning and evaluation. If suitably interpreted, after consideration of other forces, say political, social governmental policies etc., this statistical technique can be of immense help in decision making. The success of any business depends on its future estimates. On the basis of these estimates a business man plans his production stocks, selling market, arrangement of additional funds etc. Forecasting is different from predictions and projections. Regression analysis, time series analysis, Index numbers are some of the techniques through which the predictions and projections are made. Whereas forecasting is a method of foretelling the course of business activity based on the analysis of past and present data mixed with the consideration of ensuring economic policies and circumstances. In particularly forecasting means fore-warning. Forecasts based on statistical analysis are much reliable than a guess work. According to T.S.Levis and R.A. Fox, Forecasting is using the knowledge we have at one time to estimate what will happen at some future movement of time.

Importance of Forecasting