Forecasting Methods & Importance

What is Forecasting Definition : Forecasting is a process of estimating future based on the analysis of past and present data or behavior

Characteristics of Forecasting : It relates to future It is based on Present and past data It is considered to be part of planning process For forecasting we use some statistical methods It plays a important role in decision making process

Importance of Forecasting Using this method one can forecast about the future market, competition sales etc Sound planning requires correct forecasting Using correct sales forecast, right decision about advertising and promotional efforts can be taken. Success of the business is based on accurate forecasting. Accurate forecasting guarantees huge rewards. It improves Co-ordination and co-operation among different sections

Limitations of Forecasting Forecasting is based on certain assumptions which may or may not hold always good Forecasting is not useful for those industries where external environment is rapidly changing Example : Fashion Industry

Forecasting methods : 1.Opinion Survey method :  In this method opinions are collected from buyers regarding their expectations about quality of the product, price etc  Sampling technique is used for this purpose  From the samples, it is possible to forecast about response of the customer to the product

Forecasting methods : 2. Customer and distributors survey : The individuals who bought the product can be asked the reasons of making purchase The list of questions were provided to the customer Customers are requested to fill the questionnaire From the feedback received the company can forecast the sales or demand

Forecasting methods : 3. Marketing Trails :  This method is useful for new products  When competition is intense, it is difficult to penetrate in the market. Also it is difficult to understand the acceptance level of the product  Therefore instead of introducing the product in complete market, the product is introduced in selective markets initially.  Information is gathered from the customers who has purchased that product.  Cost of the method is high  This method is useful for consumer durables like washing powder, tooth pastes, soaps, shampoos etc

Forecasting methods : 4. Market Research :  This method is useful for new and existing products.  Here market research is made to understand the needs and wants of customers in terms of quality, price and different aspects etc.  Accordingly the product is designed to satisfy the Customer requirements  Market research can be carried out by research team of company itself or by external agency.  This technique is useful when large amount of information is needed.

Forecasting methods : 5. Delphi Technique :  In this method, a panel of experts are asked sequential questions in which the response to one questionnarie is used to produce next questionnarie.  The information available from some experts are made available to other experts  This technique is am interactive process.  In this method opinions are collected from experts  Iterations summerised are returned to the whole panel for inspection.  In this way through series of exchanged view, the consensus is reached

Forecasting methods : 6. Synthetic Forecast  This method is based on opinion survey and most commonly used by industrial manufacturers.  In this method the sales personnels are asked to predict about future sales in their region.  Then the estimates of different sales personnel are added together to obtain total estimated sales

Forecasting methods : 7. Times series & Analytical estimates :  This method is based on actual demand of last few years.  It is the overall growth or decline of business over the time periods:  Example : Company is achieving average 10% increase in sales for last 6 years

Forecasting methods : 8. Use of Some economic indicator :  The forecasting under this method is done with the help of one or more economic indicators. Example : Number of students in university or board is used to forecast demand of books Registration of automobiles to forecast the demand of spare parts, petrol and related things Population index to forecast the requirements of consumer non-durables like tooth pastes, soaps etc

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