Forecasting

      

Planning involves forecasting & decision making Forecasting-estimating the future events (making assumptions) Is the process of predicting future happening of events related to relevant business operations It is the process of estimating /projecting behavior (occurrence) of specific future events. Analysis of past and the present events Act of looking forward Future estimates provide the basis of planning

Characteristics or Determinants of Forecasting

        

Relates to future An estimate of future occurrence of events Forms a base for planning Depends on analysis of occurrences of the past and the present events/data Can lead to assumptions It is a base for decision making Statistical tools and techniques are used Computers and computer based softwares Personal observation plays a significant role

Essential components in Business Forecasting/Forecasting Process

Recognizing the need for forecasting  Systematic Investigation and collection of Information  Forecasting the Events  Reviewing and Regulating Forecasting


Importance or benefits of Forecasting

Promoting the organization  Base for planning-future estimates (assumptions)-premises  Tool for coordination and Control  Reduced Risk


Limitations of Forecasting
      

Forecasting is based on assumptions Overemphasis on forecasting may be misleading It doesnt provide absolute truth. It merely indicates projected trend It involves time and cost Suffers from personal bias For a new business forecasting is difficult May restrict vision of management

A list of forecasting techniques

1. 2. 3. 4. 5. 6. 7.

Times series Method Index number Exponential smoothing Extrapolation-Intrapolation Regression analysis Input-output analysis Econometrics Models

Qualitative Techniques
1. 2. 3. 4. 5. 6.

Historical Analogy Business Barometers Panel consensus method Delphi Method Morphological Analysis Expert opinion Method

Qualitative Forecasting Models



Delphi method
Iterative group process allows experts to make forecasts Participants:
 

decision makers: 5 -10 experts who make the forecast staff personnel: assist by preparing, distributing, collecting, and summarizing a series of questionnaires and survey results respondents: group with valued judgments who provide input to decision makers

Delphi Method
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Choose the experts to participate representing a variety of knowledgeable people in different areas Through a questionnaire (or E-mail), obtain forecasts (and any premises or qualifications for the forecasts) from all participants Summarize the results and redistribute them to the participants along with appropriate new questions Summarize again, refining forecasts and conditions, and again develop new questions Repeat Step 4 as necessary and distribute the final results to all participants

Qualitative Forecasting Models (cont)



Jury of executive opinion

Opinions of a small group of high level managers, often in combination with statistical models. Result is a group estimate.

Sales force composite

Each salesperson estimates sales in his region. Forecasts are reviewed to ensure realistic. Combined at higher levels to reach an overall forecast.

Consumer market survey.

Solicits input from customers and potential customers regarding future purchases. Used for forecasts and product design & planning

Limitations of Planning
   

 

Problem of rapid change Problem of setting premises Problem of internal inflexibilities- psychological, structural and capital investment Problem of external inflexibilities-political climate, trade union, international business forces, technological inflexibility Problem of time & cost Other constraints-subjective or biased planning, fear of uncertainties