what is forcasting?

Before we discuss the forcasting we know about what is forcast.

Forcast
A forcast is a prediction of future events used for planning
purposes.
Forcast are vital to every business organization and for every significant
management decision.
Forcasting should be an integral part of planning and decision
making.Defination, Forcasting is generally seen as the process of
development the most probable view of what future demand will be,given a set
of assumptions about technology,competitors,pricing,marketing,expenditure
and sales effort
Forcasting is the base of cooprate long-run planning.Functional areas of finance
and accounting,forcasts porvides the basis for budgetery planning and cost
control.Marketing relies on sales forcasting to plan new products ,compensate
sales personnel and make other key decision .Production and operation
personnel use forcasts to make periodic decisions involving process
selection,capactiy planning and facility layout,as well as for continual decision
about production planning,scheduling and inventory.Hrm use forcaste to
anticipate employee hiring and training needs.
So, Forcasting is a tool which is used in every business department
like(Finance, Hrm,Marketing,Operation and production to know the placement
of our input in future in the shape of output
Forcasts therefore must generally precede plans:it is not possible to make
decision on staffing level,purchasing commitments,and inventory level untill
forecasts are developed that give reasonably accurate views of demand over the
forcasting time horizon.
Why we need Forcasting?
To decision making
Planning
Result accuracy
Planning and decision making are directly effect on result of accuracy.Means
there is a direct or postive relationship between decision making and planning
and result accuracy.
Forcasting level or Forcasting Requirment
There are three level of forcasting.
Current(short term)
Intermediate(1 to 12 months)
Long Run (1 to 10 years)
1. Current
Plans for current operations and for immediate future .For
example day to day,weekly,monthly planning for the
estimation of production forcasting (what raw material
require,labour etc)
2. Intermediate
Plans provide for the capacities of personnel,material, and
aquipment required for the next 1 year.
3. Long Run
Plans for capacity,location,changing product and service
mix,and the development of new product and service and
new technology for the next 1 to 10 years.
There are two type of long run forcasting internal and external
long run forcasting factors .
Internal long run forcasting factor
Demand for material
Specific labour skills
Time usage of specific equipment
External long run forcasting factors
Demand of customer
Customer satisfaction
Demand of product
Draw back of long run forcasting
Due to longer time period these forcasts will have
greater uncertainty and lower degree of accuracy.
Often,the mechanical application of a model is not
sufficient to obtain the desired forcasts.
Basic categories of Forcasting Methods


Extrapolative or time series method
Causal or explanatory method
Qualitative or Judgmental method
Extrapolative or Time series method
The repeated observation of demand for a
service or product in their order of occurrence.
These method are based on the assumption that
the dependent variables past pattern will
continue in the future.Use the past history of
demand in making a forecast for the future.If
this is forcasting for short time period then its
perform quite well.
For example;(sale figures collected for the past
six weeks can be used to forecast sales for the
seventh week.
Causal Method(quantitative)
A type of quantitative method that uses
historical data on independent
variables,such as promotional
campaigns,economic condition and
competitors action,to predict demand.
Casual method are used when historical
data are available and relationship
between the factors to be forcasted and
other external or internal factors such as
(government actions or advertising
promotions) can be identified.These
relationship are expressed in mathmatical
terms and can be vary complex.Causal
method provides the most sophisticated
forcasting tools and are very good for
predicting turning points in demand and for
preparing long-range forcasts. In this
method there is a cause and effect factor
involve its means change in one variable
effect on the change in the other
variables.casual method of forcasting
assume that the demand for an item
depends on one or more independent
factors (e.g, price,advertising,competitors
price etc)These method seek to establish a
relationship between the variable to be
forecasted and independent variable.
For example;sales may be effected by
advertising,quality,and competitors.
Qualitative or judgmental Method
A type of qualitative method that
translates the opinion of managers,expert
opinions,consumer surveys,and sales-force
estimates into quantitative estimates.
Judgemental methods rely on experts or
managers opinion in making a prediction
for the future.These method are useful for
medium to long-range forcasting.
For example, An overall sales forcast may
be derived by combind inputs from each
salesperson who is closest to his or her
own area.