Category: Forecasting

  • Examples Why a need for Business Forecasting to Business?

    Examples Why a need for Business Forecasting to Business?

    Need for Business Forecasting to Business examples the Theories. Business Forecasting is an estimate or prediction of future developments in business such as sales, expenditures, and profits. It refers to the technique of taking a perspective view of things likely to shape the turn of things in the foreseeable future. As the future is always uncertain, there is a need for an organized system of forecasting in a business. Given the wide swings in economic activity and the drastic effects these fluctuations can have on profit margins; it is not surprising that business forecasting has emerged as one of the most important aspects of corporate planning. So, what we the question is: Different Theories explain why a need for Business Forecasting to Business?

    The Concept of Financial Management Examples Business Forecasting for Business, in points of Theories and Need.

    In this article, we will discuss Business Forecasting for Business; First Theories of Business Forecasting, that we look again at the need for Business Forecasting. So, let’s discuss: The essence of all the previous article on business forecasting is to explain meaning and definition is that business forecasting is a technique to analyze the economic, social, and financial forces affecting the business with the object of predicting future events based on past and present information. Need to study: Importance, Advantages, Limitations of Business Forecasting to Business.

    Examples the different theories of Business Forecasting:

    The following different theories Examples Business Forecasting needed are:

    Historical:

    This theory is based on the assumption that history repeats itself. It simply implies that whatever happened in the past under a set of circumstances is likely to happen in the future under the same set of conditions. Thus, a forecaster has to analyze the past data to select such a period whose conditions are similar to the period of forecasting. Further, while predicting for the future, some adjustments may make for the special circumstances which prevail at the time of making the forecasts.

    Action and Reaction:

    This theory is based on Newton’s ‘Third Law of Motion’, i.e., for every action; there is an equal and opposite reaction. When we apply this law to business, it implies that if there is depression in a particular field of business; there is bound to be a boom in it sooner or later. It reminds us of the business, cycle which has four phases, i.e., prosperity, decline, depression, and prosperity.

    This theory regards a certain level of business activity as normal and the forecaster has to estimate the normal level carefully. According to this theory, if the price of the commodity goes beyond the normal level; it must come down also below the normal level because of the increased production and supply of that commodity.

    Economic Rhythm:

    This theory propounds that the economic phenomena behave rhythmically and cycles of nearly the same intensity and duration tend to recur. According to this theory, the available historical data have to analyze into their components, i.e. trend, seasonal, cyclical, and irregular variations. The secular trend obtains from the historical data project several years into the future on a graph or with the help of mathematical trend equations.

    If the phenomena are cyclical in behavior, the trend should adjust for cyclical movements. When the forecast for a year is to be split into months or quarters then the forecaster should adjust the projected figures for seasonal variations also with the help of seasonal indices. It becomes difficult to predict irregular variations and hence, the rhythm method should use along with other methods to avoid inaccuracy in forecasts. However, it must remember that business cycles may not be strictly periodic and the very assumptions of this theory may not be true as history may not repeat.

    Sequence Method/Time-Lag Method:

    This theory is based on the behavior of different businesses which show similar movements occurring successively but not simultaneously. As such, this method takes into account time lag based on the theory of lead-lag relationship which holds good in most cases. The series that usually change earlier serve as the forecast for other related series. However, the accuracy of forecasts under this method depends upon the accuracy with which time lag estimate.

    Cross-Cut Analysis:

    In this method of business forecasting, the combined effect of various factors is not studied; but the effect of each factor, that has a bearing on the forecast, is studied independently. This theory is similar to the Analysis of Time Series under the statistical methods.

    Modernity:

    This approach makes use of mathematical equations for drawing economic models. These models depict the inter-relationships amongst the various factors affecting the economy or business. The expected values for dependent variables then ascertain by putting the values of known variables in the model. This approach is highly mechanical and this can rarely employe in business conditions. Very helpful: Elements, Techniques, and Steps of Business Forecasting.

    The Need for Business Forecasting:

    Some of Examples the important needs of business forecasting list below:

    These are Six need:

    • Production Planning.
    • Financial Planning.
    • Economic Planning.
    • Workforce Scheduling.
    • Decisions Making, and.
    • Controlling Business Cycles.

    Now, Explain each one:

    Production Planning:

    The rate of producing the products must match with the demand which may be fluctuating over the time period in the future. Since its time consuming to change the rate of output of the production processes; so, the production manager needs medium-range demand forecasts to enable them to arrange for the production capacities to meet the monthly demands which are varying.

    Financial Planning:

    Sales forecasts are a driving force in budgeting. Sales forecasts provide the timing of cash inflows and also provide a basis for budging the requirements of cash outflows for purchasing materials, payments to employees and to meet other expenses of power and utilize, etc. Hence forecasting helps finance managers to prepare budgets taking into consideration the cash inflow and cash outflows.

    Economic Planning:

    Forecasting helps in the study of macroeconomic variables like population, total income, employment, savings, investment, general price-level, public revenue, public expenditure, the balance of trade, the balance of payments, and a host of other macro aspects at national or regional levels. The forecasts of these variables are generally for a long period of time ranging between one year to ten or twenty years ahead. Much would depend on the perspective of planning, longer the perspective longer would be period of forecasting. Such forecasts often call projections. These are helpful not only for planning and public policymaking; but, they also include likely economic environment and aid formulation of business policies as well.

    Workforce Scheduling:

    The forecast of monthly demand may further break down to weekly demands and the workforce may have to adjust to meet these weekly demands. Hence, forecasts need to enable managers to get in tune with the workforce changes to meet the weekly production demands.

    Decisions Making:

    The goal of the forecaster is to provide information for decision-making. The purpose is to reduce the range of uncertainty about the future. Businessmen make forecasts to make profits. In business, the forecast has to be done at every stage. A businessman may dislike statistics or statistical theories of forecasting, but he can not do without making forecasts. Business plans of production, sales, and investment require predictions regarding the demand for the product; the price at which the product can be soled, and the availability of inputs.

    The forecast for demand is the most crucial. The operating budgets of various departments of a company have to be based upon the expected sales. Efficient production schedules, minimization of operating cost, and investment in fixed assets are when accurate forecasts recording sales and availability of inputs are available.

    Controlling Business Cycles:

    It is commonly believed that business cycles are always very harmful in their effects. Abrupt rise and fall in the price level injurious not only to businessmen but to all types of persons, industries, trade, agriculture. All suffer from the painful effects of depression. The Trade cycle increases the risk of business; creates unemployment; induces speculation and discourages capital formation.

    Their effects are not confined to one country only. Business forecasting reduces the risk associated with business cycles. Prior knowledge of a phase of a trade cycle with its intensity and expected period of happening may help businessmen, industrialists, and economists to plan accordingly to reduce the harmful effects of trade cycle statistics is thus needed to control the business cycles.

    Different Theories explain why a need for Business Forecasting to Business
    Different Theories explain why a need for Business Forecasting to Business? Image credit from #Pixabay.
  • What is Sales Forecasting? Meaning and Definition

    What is Sales Forecasting? Meaning and Definition

    Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. The sales forecast is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.

    Sales Forecasting is explained in Meaning and Definition.

    Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates. As to how much of a particular product is likely to be sold in a specified future period in a specified market at the speci­fied price.

    Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time. Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand.

    Forecasting means estimation of quantity, type, and quality of future work e.g. selling. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in ad­vance. This is a commitment on the part of the selling department and future planning of the entire concern depends on this forecast.

    The management of a firm is required to prepare. Its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, it is an estimate of the sales potential of the firm in the future. All plans are based on the selling forecasts. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money.

    Definition:

    It is an estimation of sales volume that a company can expect to attain within the plan period. A sales forecast is not just a sales predicting. It is the act of matching opportunities with the marketing efforts. It is the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.

    According to the American Marketing Association,

    “Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”

    According to Candiff and Still,

    “Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”

    Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the selling department is decided on the basis of this forecast. These forecasts also help in planning the future development of the concern. It forms a basis for production targets.

    From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical. Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of selling in terms of money or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.

  • Advantages and Limitations of Sales Forecasting

    Advantages and Limitations of Sales Forecasting

    Learn about the different sales forecasting methods, their importance, advantages, and limitations. Optimize your sales strategy with expert insights. Sales Forecasting; Every manufacturer makes an estimation of the sales likely to take place in the near future. It gives focus to the activities of a business enterprise. In the absence of sales forecast, a business has to work at random. Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand. The sales forecast is the estimate of the number of sales to be expected for an item/product or products for a future period of time. So, what we discussing is – Types, Importance, Advantages, and Limitations of Sales Forecasting.

    The Concept of Forecasting explains Sales Forecasting by Types, Importance, Advantages, and Limitations.

    In this article is discussing, Sales Forecasting: Types of Sales Forecasting, Importance of Sales Forecasting, Advantages of Sales Forecasting, and Limitations of Sales Forecasting. So, let’s discuss; Meaning of Sales Forecasting: Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the speci­fied price. Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time.

    Types of Sales Forecasting:

    The following Types of Sales Forecasting below are:

    • Economic: This type of forecast is important to understand the general economic trend through a careful study of Five Year Plans, Gross national products. National income, Government expenditure, Unemployment, Consumer spending habits etc. This is in order to have an accurate forecast. Big companies, in India, adopt this method.
    • Industry: The future market demand is calculated through industrial forecast or market forecast. The expected sales forecasts of all the industries, in the same line of business are combined. Market demand may be affected by controllable-price, distribution, promotion, etc., and uncontrollable-demographic, economic, political, technological development, cultural activities etc. The executive must take into account all these conditions while forecasting.
    • Company: The third step goes to the firm concerned to look into the market share, for which forecast is to be made. By considering both controllable and uncontrollable, based on chosen marketing plans within the firm, with that of other industries, steps are taken in formulating forecasts.

    There are three classes (Periods) of sales forecasts:

    Short-run Forecast:

    It is also known as operating forecast, covering a maximum of one year or it may be half-yearly, quarterly, monthly and even weekly. This type of forecasting can be advantageously utilized for estimating stock requirements, providing working capital, establishing sales quotas, fast-moving factors. It facilitates the management to improve and coordinate the policies and practice of Marketing-production, inventory, purchasing, financing etc. The short-run forecast is preferred to all types and brings more benefits than other types.

    Purpose of Short-Term Forecasting:

    • Production Policy: By knowing the future demand the decision regarding production policy can be taken so that there is no problem of overproduction and short supply of input materials.
    • Material Requirement Planning: By knowing the future demand, the availability of the right quantity and quality of materials could be ensured.
    • Purchase Procedure: The purchase programme could be decided depending on the material requirements.
    • Inventory Control: Proper control of inventory could be ensured so that inventory carrying cost is minimum or optimum.
    • Equipment Requirement: The decision regarding procurement of new equipment in view of the capacity and capability of the existing equipment can be taken.
    • Man-Power Requirement: The decision regarding recruitment of extra labor on the full time or part time could be taken.
    • Finance: The arrangement of funds for the purchase of raw materials, machines, and parts could be made.

    Medium-run Forecast:

    This type of forecast may cover from more than one year to two or four years. This helps the management to estimate probable profit and control over budgets, expenditure, production etc. The factors-price trend, tax policies, institutional credit etc., are specially considered for a good forecast.

    Long-run Forecast:

    This type of forecast may cover one year to five years, depending on the nature of the firm. Seasonal changes are not considered. The forecaster takes into account the population changes, competition changes, economic depression or boom, inventions etc. Also, This type is good for adding new products and dropping old ones. The forecasting that covers a considerable period of time, such as 5, 10, 20 years is called long-term forecasting.

    The period no doubt depends upon the nature of business or type of the product the firm is engaged in manufacturing. In many industries like steel plants petroleum refinery or paper mills where the total investment for the equipment/infrastructure is quite high, long-term forecasting is needed.

    Purposes of Long-Term Forecasting:

    • To plan for the new unit of production, or expansion of the existing unit or diversification of lines of production or shut down of the existing units depending upon the level of demand.
    • Also, To plan the long-term financial requirement for various needs.
    • To make proper arrangement for training the personnel so that manpower requirement of desired expertise can be met in future.

    Importance of Sales Forecasting:

    The following Importance of Sales Forecasting below are:

    1. Supply and demand for the products can easily be adjusted, by overcoming temporary demand, in the light of the anticipated estimate; and regular supply is facilitated.
    2. A good inventory control is advantageously benefited by avoiding the weakness of understocking and overstocking.
    3. Allocation and reallocation of sales territories are facilitated.
    4. It is a forward planner as all other requirements of raw materials, labor, plant layout, financial needs, warehousing, transport facility etc., depend in accordance with the sales volume expected in advance.
    5. Sales opportunities are searched out on the basis of forecast; mid thus discovery of selling success is made.
    6. It is a gear, by which all other activities are controlled as a basis of forecasting.
    7. Advertisement programmes are beneficially adjusted with full advantage to the firm.
    8. It is an indicator to the department of finance as to how much and when finance is needed; it helps to overcome difficult situations.
    9. It is a measuring rod by which the efficiency of the sales personnel or the sales department, as a whole, can be measured.
    10. Sales personnel and sales quotas are also regularized-increasing or decreasing-by knowing the sales volume, in advance.

    Additional:

    • It regularizes productions through the vision of sales forecast and avoids overtime at high premium rates. It also reduces idle time in manufacturing.
    • As is the sales forecast, so is the progress of the firm. The master plan or budget of a firm is based on forecasts. “The act of forecasting is of great benefit to all who take part in the process and is the best means of ensuring adaptability to changing circumstances. The collaboration of all concerned leads to a unified front, an understanding of the reasons for decisions, and a broadened outlook.”
    • Sales forecast enables all the departments of the business to work together in proper coordination and cooperation.
    • Sales forecast helps in product mix decisions as well. It enables the business to decide whether to add a new product to its product line or to drop an unsuccessful one.
    • The sales forecast is a commitment on the part of the sales department and it must be achieved during the given period, and.
    • It helps in guiding marketing, production and other business activities for achieving these targets.

    Advantages of Sales Forecasting:

    Sales are the lifeblood of every company. The advantages of forecasting your company’s sales lie mainly in giving you a firm idea of what to expect in the coming months. A standard sales forecast looks at conditions present in your business during previous months and then applies assumptions regarding customer acquisition, the economy, and your product and service offerings. Forecasting sales identifies weaknesses and strengths before you set your budget and marketing plans for the next year, allowing you to optimize your purchasing and expansion plans.

    The following Advantages of Sales Forecasting are four types:

    1. Cash Flow:

    Forecasting helps manage cash flow by predicting future sales and ensuring that the company can meet its financial obligations. This foresight can prevent potential shortfalls and ensure that there are sufficient funds for operations, investments, and emergencies.

    2. Purchasing:

    Sales forecasting aids in planning purchasing activities. By anticipating future demand, companies can make timely and cost-efficient procurement decisions, avoiding both overstocking and stockouts.

    3. Planning:

    It assists in strategic planning by providing a basis for making informed decisions. This includes production planning, workforce planning, and setting realistic sales targets and marketing strategies.

    4. Tracking:

    Sales forecasting offers a framework for tracking progress and performance. This allows management to monitor actual sales against forecasts, identify variances, and adjust strategies accordingly to stay on track with company goals.

    By leveraging these advantages, businesses can enhance their operational efficiency, financial stability, and overall market competitiveness.

    Limitations of Sales Forecasting:

    In certain cases forecast may become inaccurate. The failure may be due to the following factors:

    Fashion:

    Changes are throughout. Present style may change any time. It is difficult to say as to when a new fashion will be adopted by the consumers and how long it will be accepted by the buyers. If our product is similar to fashion and is popular, we are able to have the best result; and if our products are not in accordance with the fashion, then sales will be affected.

    Lack of Sales History:

    A sales history or past records are essential for a sound forecast plan. If the past data are not available, then the forecast is made on guess-work, without a base. Mainly a new product has no sales history and forecast made on guess may be a failure.

    Psychological Factors:

    Consumer’s attitude may change at any time. The forecaster may not be able to predict exactly the behavior of consumers. Certain market environments are quick in action. Even rumors can affect market variables. For instance, when we use a particular brand of soap, it may generate itching feeling on a few people and if the news spread among the public, sales will be seriously affected.

    Other Reasons:

    It is possible that the growth may not remain uniform. It may decline or be stationary. The economic condition of a country may not be favorable to the business activities-policies of the government, the imposition of controls etc. It may affect the sales.

    Basic Limitations of Sales Forecasting;

    • The tastes and preferences of the buyers do not remain constant. A sudden change in the preference of the buyers may render the forecasts meaningless.
    • The economic conditions prevailing in every country also do not remain stable. The purchasing power of money, desire to save and invest etc., are some of the important economic factors having a bearing on sales forecast.
    • The political conditions in a State also influence sales forecast. The policies of the Government regarding business change often. A sudden hike in excise duty or sales tax by the Government may affect sales.
    • The entry of competitors may also affect sales. A firm enjoying monopoly status may lose such a position if the buyers find the competitors’ products more superior.
    • Progress in science and technology may render the present technology obsolete. As a result, products which are right now enjoying a good market may lose the market and the demand for products made using the latest technology will increase. This is particularly true in the case of the market for electronic goods, computer hardware, software and so on.

    The methods of sales forecasting discussed above have respective advantages and limitations or merits and demerits. No single method may be suitable. Therefore, a combination method is suitable and may give a good result. The forecaster must be cautious while drawing decisions on sales forecast. Periodical review and revision of sales forecast may be done, in the light of performance. A method which is quick, less costly and more accurate may be adopted.

  • Factors of Sales Forecasting

    Factors of Sales Forecasting

    Explore essential factors of sales forecasting to improve accuracy and drive business growth. Learn how to leverage data for better decision-making. The management of a firm is required to prepare its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, the sales forecast is an estimate of the sales potential of the firm in the future. All plans are based on the sales forecasts. Sales Forecasting is the projection of customer demand for the goods and services over a period of time. A businessman who invests a large amount of capital in his business, cannot afford to work haphazardly. So, what we discussing is – Meaning, Definition, Need, and Factors of Sales Forecasting.

    The Concept of Forecasting explains Sales Forecasting by Meaning, Definition, Need, and Factors.

    In this article is discussing, Sales Forecasting: Meaning of Sales Forecasting, Definition of Sales Forecasting, Need for Sales Forecasting, and Factors of Sales Forecasting. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money. Future is uncertain. Man thinks about the future. He may be a businessman, a broker, a manufacturer, a commission agent etc.

    All guess about the future in their respective field of interest. We try to know, through a clear imagination, what will be happening in the near future—after a weak, month or year. It can be called forecast or prediction. The process of forecasting is based on reliable data of past and present. Forecasting is not new, as it has been practiced from time immemorial.

    Meaning of Sales Forecasting:

    Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the speci­fied price. Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time.

    Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand. Forecasting means estimation of quantity, type, and quality of future work e.g. sales. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in ad­vance.

    This is a commitment on the part of the sales department and future planning of the entire concern depends on this forecast. It is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.

    Definition of Sales Forecasting:

    Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand.

    According to the American Marketing Association,

    “Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”
    “An estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”

    It is an estimation of sales volume that a company can expect to attain within the plan period. A sales forecast is not just a sales predicting. It is the act of matching opportunities with the marketing efforts. It is the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.

    According to Candiff and Still,

    “Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”

    Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the sales department is decided on the basis of this forecast and these forecasts also help in planning the future development of the concern. The sales forecast forms a basis for production targets. From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical.

    Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of sales in terms of money or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.

    Need for Sales Forecasting:

    The following Need for Sales Forecasting below are:

    • The management of the enterprise can take the decision regarding operations planning, scheduling, production programming inventories of various types, physical distribution and operating profits on the basis of sales forecasts.
    • Long-term sales forecasts can help in deciding investment proposals. Such as modernization, expansion of existing units, diversification of product lines etc.
    • Sales forecasts are essential to make proper arrangement for training. The manpower in its own unit or sending them to other industries in the country or abroad to meet the future needs of expertise.

    Factors of Sales Forecasting:

    Factors influencing a Sales Forecasting; A sales manager should consider all the factors affecting the sales while predicting the firm’s sales in the market.

    An accurate sales forecast can be made if the following factors are considered carefully:

    General Economic Condition:

    It is essential to consider all economic conditions relating to the firm and the consumers. The forecaster must see the general economic trend-inflation or deflation, which affect the business favorably or adversely. A thorough knowledge of the economic, political and the general trend of the business facilities to build a forecast more accurately. Past behavior of the market, national income, disposable personal income, consuming habits of the customers etc., affect the estimation to a great extent. Two types of Economic; microeconomic and macroeconomic as well as short-term market and long-term market.

    Consumers:

    Products like wearing apparel, luxurious goods, furniture, vehicles. The size of the population by its composition-customers by age, sex, type, economic condition etc., have an important role. And the trend of fashions, religious habits, social group influences etc., also carry weights. Also, The consumer is the one who pays something to consume goods and services produced. As such, consumers play a vital role in the economic system of a nation. Without consumer demand, producers would lack one of the key motivations to produce: to sell to consumers.

    Industrial Behaviors:

    Markets are full of similar products manufactured by different firms, which compete among themselves to increase the sales. As such, the pricing policy, design, advanced technological improvements, promotional activities etc., of similar industries must be carefully observed. A new firm may come up with products to the markets and naturally affect the market share of the existing firms. Unstable conditions—industrial unrest, government control through rules and regulations, improper availability of raw materials etc., directly affect the production, sales, and profits.

    Changes within Firm:

    Future sales are greatly affected by the changes in pricing, advertising policy, quality of products etc. A careful study in relation to the changes in the sales volume may be studied carefully. Sales can be increased by the price cut, enhancing advertising policies, increased sales promotions, concessions to customers etc.

    Period:

    The required information must be collected on the basis of the period—short run, medium run or long run forecasts. A period of sales depending on the market requires. For example, Some product sale short period. As well as medium or long periods all required, is product demands and supply.

    Some Factors also Considered:

    Following factors should be considered while making the sales forecast:

    • Market Competition: To assess demand, it is the main factor to know about the existing and new competitors and their future programme, the quality of their product, the sales of their product. The opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered.
    • Technology Changes: With the advancement of technology, new products are com­ing in the market and the taste. The likings of the consumer’s changes with the advancement and change of technology.
    • An action of Government: When the government produces or purchases. Then depending upon the government policy and rules, the sales of the products are also affected.
    • Factors Related to the Concern Itself: These factors are related to the change in the capacity of the plant. Change in price due to the change in expenditure, change in product mix etc.

    Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time. Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Also, Many firms manufacture on the order basis. But in general, every firm produces the material in advance to meet future demand.

  • Advantages and Limitations of Forecasting

    Advantages and Limitations of Forecasting

    Explore the advantages and limitations of forecasting to enhance your decision-making. Gain insights into effective strategies for accurate predictions. As we know, What is Forecasting? It may not reduce the complications and uncertainty of the future. Forecasting is the process of making predictions of the future based on past and present data and most commonly by analysis of trends. A commonplace example might be an estimation of some variable of interest at some specified future date. However, it increases the confidence of the management to make important decisions. Forecasting is the basis of promising. Forecasting uses many statistical techniques.

    The Concept of Business is explaining Forecasting for Company, in points of Advantages and Limitations or Disadvantages.

    In this article, we will discuss Forecasting for Business Planning: First Advantages of Forecasting Methods, Advantages of Forecasting, after that Limitations of Forecasting, Basic Disadvantages of Forecasting, and finally discussing Steps in Forecasting. Usage can differ between areas of application: for example, in hydrology the terms “forecast” and “forecasting” are sometimes reserved for estimates of values at certain specific future times, while the term “prediction” is used for more general estimates, such as the number of times floods will occur over a long period.

    Companies apply forecasting methods of production to anticipate potential issues and results for the business in the upcoming months and years. Forecasting methods can include both quantitative data and qualitative observations. Operations management techniques help businesses determine the actions they should take to bring about favorable results and avoid unprofitable scenarios based on those forecasts. These techniques frequently involve the development and distribution of both new and existing products and services.

    #Advantages of Forecasting Methods:

    Businesses employ a diverse array of forecasting methods to evaluate potential results stemming from their decisions. The most notable advantage of quantitative forecasting methods is that the projections rely on the strength of past data. The chief advantage of qualitative methods is that the main source of data derives from the experiences of qualified executives and employees. The vast majority of business owners blend hard data with personal impressions to develop useful forecasts.

    #Advantages of Forecasting:

    Forecasting plays a vital role in the process of modern management. It is an important and necessary aid to planning and planning is the backbone of effective operations.

    Thus the importance or advantages of forecasting are stated below:

    • It enables a company to commit its resources with the greatest assurance to profit over the long term.
    • It facilitates the development of new products, by helping to identify future demand patterns.
    • Forecasting by promoting the participation of the entire organization in this process provides opportunities for teamwork and brings about unity and coordination.
    • The making of forecasts and their review by managers, compel thinking ahead, looking to the future and providing for it.
    • Forecasting is an essential ingredient of planning and supplies vital facts and crucial information.
    • Forecasting provides a way for effective coordination and control. Forecasting requires information about various external and internal factors. The information is collected from various internal sources. Thus, almost all units of the organization are involved in this process, which provides interactive opportunities for better unity and coordination in the planning process. Similarly, forecasting can provide relevant information for exercising control. Also, The managers can know their weakness in the forecasting process and they can take suitable action to overcome these.
    • A systematic attempt to probe the future by inference from known facts helps integrate all management planning so that unified overall plans can be developed into which divisional and departmental plans can mesh.
    • The uncertainty of future events can be identified and overcomes by effective forecasting. Therefore, it will lead to success in the organization.

    #Limitations of Forecasting:

    The following limitations of forecasting are listed below:

    The basis of Forecasting:

    The most serious limitations of forecasting arise out of the basis used for making forecasts. Top executives should always bear in mind that the bases of forecasting are assumptions, approximations, and average conditions.

    Management may become so concerned with the mechanism of the forecasting system that it fails to question its logic. Also, This critical examination is not to discourage attempts at forecasting. But to sound caution about the practice of forecasting and its inherent limitations.

    Reliability of Past Data:

    The forecasting is made on the basis of past data and the current events. Although past events/data are analyzed as a guide to the future, a question is raised as to the accuracy as well as the usefulness of these recorded events.

    Time and Cost Factor:

    Time and cost factor is also an important aspect of forecasting. They suggest the degree to which an organization will go for formal forecasting. Also, The information and data required for forecast may be in highly disorganized form; some may be in qualitative form.

    The collection of information and conversion of qualitative data into quantitative ones involves a lot of time and money. Therefore, managers have to tradeoff between the cost involved in forecasting and resultant benefits. So forecasting should be made by eliminating the above limitations.

    #Disadvantages of Forecasting:

    The primary disadvantage of forecasting is the same as that of any other method of predicting the future: No one can be absolutely sure what the future holds. Any unforeseen factors can render a forecast useless, regardless of the quality of its data. Also, some forecasting methods may use the same data but deliver widely different forecasts. For instance, one forecasting method can show that interest rates will rise, while another will illustrate that rates will hold steady or decline.

    #Steps of Forecasting:

    Procedure, stages or general steps involved in forecasting are given below:

    Analyzing and understanding the problem:

    The manager must first identify the real problem for which the forecast is to be made. Also, This will help the manager to fix the scope of forecasting.

    Developing a sound foundation:

    The management can develop a sound foundation, for the future after considering available information, experience, type of business, and the rate of development.

    Collecting and analyzing data:

    Data collection is time-consuming. Only relevant data must be kept. Many statistical tools can be used to analyze the data.

    Estimating future events:

    The future events are estimated by using trend analysis. Trend analysis makes provision for some errors.

    Comparing results:

    The actual results are compared with the estimated results. If the actual results tally with the estimated results, there is nothing to worry. In case of any major difference between the actuals and the estimates, it is necessary to find out the reasons for poor performance.

    Follow up action:

    The forecasting process can be continuously improved and refined on the basis of past experience. Areas of weaknesses can be improved for the future forecasting. There must be regular feedback on past forecasting.

    Above advantages and limitations, may be explained as you want to understating about Forecasting. Risk and uncertainty are central to forecasting and prediction; it is generally considered the good practice to indicate the degree of uncertainty attaching to forecasts. In any case, the data must be up to date in order for the forecast to be as accurate as possible. In some cases, the data used to predict the variable of interest is itself forecasted.

  • Forecasting: Definition, Elements, and Techniques

    Forecasting: Definition, Elements, and Techniques

    What is the Forecasting? It is a process of predicting or estimating the future based on past and present data. Business Forecasting can be broadly considered as a method or a technique for estimating many future aspects of a business or other operation. Planning for the future is a critical aspect of managing any organization, and small business enterprises are no exception. Forecasting provides information about the potential future events and their consequences for the organization. It may not reduce the complications and uncertainty of the future. However, it increases the confidence of the management to make important decisions.

    The Concept of Planning is explaining Forecasting for Business, in points of Meaning, Definition, Elements, Importance, and Techniques.

    In this article, we will discuss Forecasting for Business Planning: First Meaning of Forecasting, then Definition of Forecasting, after those Elements of Forecasting, Importance of Forecasting, and finally discussing Techniques of Forecasting. Forecasting is the basis of promising. Forecasting uses many statistical techniques. Therefore, it is also called a Statistical Analysis. Indeed, their typically modest capital resources make such planning particularly important.

    In fact, the long-term success of both small and large organizations is closely tied to how well the management of the organization is able to foresee its future and to develop appropriate strategies to deal with likely future scenarios. Intuition, good judgment, and an awareness of how well the industry and national economy is doing may give the manager of a business firm a sense of the future market and economic trends.

    Nevertheless, it is not easy to convert a feeling about the future into a precise and useful number. Such as next year’s sales volume or the raw material cost per unit of output. Forecasting methods can help estimate many such future aspects of a business operation.

    #Meaning and Definition of Forecasting:

    As we know planning is:

    “A systematic economic and rational way of making decisions today that will affect tomorrow.”

    Then forecasting becomes an integral part of the planning process, especially, strategic planning which is long-range in nature.

    Lyndall Unrwick defined forecasting as it is involved to some extent in every conceivable business decision. The man who starts a business is making an assessment of future demand for its products. Also, The man who determines a production programme for the next six months or twelve months is usually also basing it on some calculation of future demand. The man, who engages staff, and particularly Young staff, usually have an eye to future organizational requirements.

    Business forecasting refers to a systematic analysis of past and present conditions with the aim of drawing inferences about the future course of events.

    Louis Allen defines forecasting as,

    “A systematic attempt to probe the future by inference from known facts.”

    Neter and Wasserman have defined forecasting as:

    “Business forecasting refers to the statistical analysis of the past and current movement in the given time series so as to obtain clues about the future pattern of those movements.”

    Perfect accuracy is not obtainable,” warned Richard Brealey and Stewart Myers in Principles of Corporate Finance.

    “If it were, the need for planning would be much less. Still, the firm must do the best it can. Forecasting cannot be reduced to a mechanical exercise. Naive extrapolation or fitting trends to past data are of limited value. It is because the future is not likely to resemble the past that planning is needed. To supplement their judgment, forecasters rely on a variety of data sources and forecasting methods.”

    For example, forecasts of the economic and industry environment may involve the use of econometric models. Which take account of interactions between economic variables. In other cases, the forecaster may employ statistical techniques for analyzing and projecting time series. Forecasts of demand will partly reflect these projections of the economic environment. But they may also be based on formal models that marketing specialists have developed for predicting buyer behavior or on recent consumer surveys to which the firm has access.

    #Elements of the Forecasting:

    The following elements of the forecasting process:

    These are:

    • Prepare the groundwork.
    • Create a future business.
    • Comparing actual with estimated results, and.
    • Refining the forecasts.

    Now, explain each one:

    Prepare the Groundwork:

    The group work preparation requires a thorough study, investigation, and analysis of the company, its products, its market share, its organizational structure, and the industry. The investigation will involve the past performance of all these factors. Their growth over a period of time and the extent of their inter-relationships and inter-dependence. The aim is to build a foundation on which future estimates can be based.

    Create a Future Business:

    The future expectancy of the business can be reasonably computed from the past data as well as the input from the key executives of the organization, sales personnel, and other specialists. This forecast is developed with the participation of the key personnel and is officially communicated to all. Thus all these people assume responsibility for meeting these forecasts and accountability for any deviations from this forecast.

    Comparing Actual with Estimated Results:

    The forecast estimates over the future years provide benchmarks against which the actual growth and results can be measured and compared. If there are significant variations between the two, one way or another, the reasons for such deviations can be investigated and analyzed.

    Refining the Forecasts:

    In the light of any deviations found, the forecast can be refined to be more realistic. If some conditions have changed during the periodic evaluation, then the new values of the variables can be incorporated into the estimates.

    Thus, these constant revisions and refinements and improvements would add to the experience and skill in forecasting, since proficiency in forecasting can only be gained through practice and experience. The above elements indicate a systematic approach to the problem of forecasting. As to materiality, these elements are found in any research procedure.

    #Importance of Forecasting:

    Importance of forecasting involves the following key points:

    • Forecasting provides relevant and reliable information about the past and present events and the likely future events. This is necessary for sound planning.
    • It gives confidence to the managers for making important decisions.
    • It is the basis for making planning premises, and.
    • It keeps managers active and alert to face the challenges of future events and the changes in the environment.

    #Techniques of Forecasting:

    The following Forecasting technique can be classified into two major categories:

    Qualitative Techniques:

    The following techniques three types:

    • Jury or executive opinion
    • Salesforce estimates.
    • Customer expectations.

    Now, Explains:

    Jury or Executive Opinion: 

    The jury of expert opinion sometimes referred to as the Dolphi technique; involves soliciting opinions or estimates from a panel of “experts” who are knowledgeable about the variable being forecasted. In addition to being useful in the creation of a sales or demand forecast, this approach is used to predict future technological developments. This method is fast less expensive and does not depend upon any elaborate statistics and brings in specialized viewpoints.

    Sales Force Estimates: 

    This approach involves the opinion of the sales force and these opinions are primarily taken into consideration for forecasting future sales. The sales people, being closer to consumers, can estimate future sales in their own territories more accurately. Based on these and the opinions of sales managers, a reasonable trend of the future sales can be calculated.

    These forecasts are good for short-range planning since salespeople are not sufficiently sophisticated to predict long-term trends. This method known as the “grassroots” approach lends itself to easy breakdowns of product, territory, customer etc., which makes forecasting more elaborate and comprehensive.

    Customer Expectations: 

    This type of forecasting technique is to go outside the company and seek subjective opinions from customers about their future purchasing plans. Also, Sales representatives may poll their customers or potential customers about the future needs for the goods and services the company supplies. Direct mail questionnaires or telephone surveys may be used to obtain the opinions of existing or potential customers.

    This is also known as the “survey method” or the “marketing research method” where information is obtained concerning. Customer buying preferences, advertising effectiveness and is especially useful where the target market is small such as buyers of industrial products, and where the customers are co-operative.

    Quantitative Techniques:

    Quantitative techniques are based on the analysis of past data and its trends. These techniques use statistical analysis and other mathematical models to predict future events.

    Some of these techniques are:

    • Time series analysis.
    • Economic models.
    • Regression analysis.

    Now, Explains:

    Time Series Analysis: 

    Time series analysis involves decomposition of historical series into its various components, viz., trend, seasonal variations, cyclical variations, and random variations. Also, Time series analysis uses index numbers but it is different from barometric technique. In the barometric technique, the future is predicted from the indicating series, which serve barometers of economic change.

    In time series analysis, the future is taken as some sort of an extension of the past. When the various components of a time series are separated, the variations of a particular phenomenon, the subject under study stay say price, can be known over the period of time and projection can be made about future.

    A trend can be known over the period of time, which may be true for the future also. However, time series analysis should be used as a basis for forecasting when data are available for a long period of time and tendencies disclosed by the trend and seasonal factors are fairly clear and stable.

    Economic Models: 

    Utilize a system of interdependent regression equations that relate certain economic indicators of the firm’s sales, profits etc. Also, Data center or external economic factors and internal business factors interpreted with statistical methods. Often companies use the results of national or regional econometric models as a major portion of a corporate econometric model.

    While such models are useful in forecasting, their major use tends to be in answering “what if”? Questions. These models allow management to investigate and in major segments of the company’s business on the performance and sales of the company.

    Regression Analysis: 

    Regression Analysis is statistical equations designed to estimate some variables such as sales volume, on the basis of one or more ‘independent’ variables believed to have some association with it.

  • Business Forecasting Definition, Types, and Need

    Business Forecasting Definition, Types, and Need

    Explore business forecasting with insights on its meaning, definition, types, and the need of forecasting for strategic planning and informed decision-making. What is Business Forecasting? It is an estimate or prediction of future developments in business such as sales, expenditures, and profits. Given the wide swings in economic activity and the drastic effects these fluctuations can have on profit margins. It is not surprising that business forecasting has emerged as one of the most important aspects of corporate planning.

    The Concept of Management explains Business Forecasting in the points of Meaning, Definition, Types, and Need.

    In this article discussing Business Forecasting: First Meaning of Business Forecasting, then the second Definition of Business Forecasting, the third Types of Business Forecasting, and finally Need of Business Forecasting. Forecasting has become an invaluable tool for business people to anticipate economic trends and prepare themselves either to benefit from or to counteract them.

    If, for instance, business people envision an economic downturn, they can cut back on their inventories, production quotas, and hiring. If, on the contrary, an economic boom seems probable, those same business people can take the necessary measures to attain the maximum benefit from it. Good business forecasts can help business owners and managers adapt to a changing economy.

    Meaning of Business Forecasting:

    Business forecasting is an act of predicting the future economic conditions on the basis of past and present information. It refers to the technique of taking a perspective view of things likely to shape the turn of things in the foreseeable future. As the future is always uncertain, there is a need for an organized system of forecasting in business.

    Thus, scientific business forecasting involves:

    • Analysis of the past economic conditions, and.
    • Analysis of the present economic conditions; so as to predict the future course of events accurately.

    In this regard, business forecasting refers to the analysis of the past and present economic conditions with the object of drawing inferences about the future business conditions.

    Definition of Business Forecasting:

    In the words of Allen,

    “Forecasting is a systematic attempt to probe the future by inference from known facts. The purpose is to provide management with information on which it can base planning decisions.

    Leo Barnes observes,

    “Business Forecasting is the calculation of reasonable probabilities about the future, based on the analysis of all the latest relevant information by tested and logically sound statistical econometric techniques, as interpreted, modified and applied in terms of an executive’s personal judgment and social knowledge of his own business and his own industry or trade.”

    In the words of C.E. Sulton,

    “Business Forecasting is the calculation of probable events, to provide against the future. It, therefore, involves a ‘look ahead’ in business and an idea of predetermination of events and their financial implications as in the case of budgeting.”

    According to John G. Glover,

    “Business Forecasting is the research procedure to discover those economic, social and financial influences governing business activity, so as to predict or estimate current and future trends or forces which may have a bearing on company policies or future financial, production and marketing operations.”

    The essence of all the above definitions is that business forecasting is a technique to analyze the economic. Social and financial forces affecting the business with an object of predicting future events on the basis of past and present information.

    Types of Business Forecasting:

    Various types of Business Forecasting are –

    General Business Forecast:

    No business is completely independent and hence general business forecast is undertaken. It helps to read the future conditions for business and to predict the probable changes in business conditions that are likely to occur in the near future. Every business is affected by the conditions of the c community in which it is located.

    We should not be under the impression that only business conditions influence the general business. Political conditions, fiscal policy, controls, population, and national income etc. have a direct bearing on the business. So, it is necessary for the manager to take into consideration all these factors. While forecasting the prospects of his enterprise.

    Sales Forecast:

    This type of forecasting decides the fate of the organization as the sales determine the success of the company. Therefore, sales forecasting should be undertaken with due care and precaution. So as to see that whatever planning department has decided is carried out to promote the sales. It is from this point of view only that sales forecasting has been deemed to be as a guiding factor in planning an important aspect of the organizational setup. 

    In this connection O’ Donnell points out that,

    “It is the sales forecast that must set the stage for internal planning, business expenses, capital outlays. Policies of all kinds are made the purpose ordinarily of maximizing profits obtainable from expected sales, whether this forecast is for a period of months or for a period of years; it is the key to future business plans.”

    Capital Forecast:

    Every business enterprise will have to think of its financial plans. It should be determined so as to meet the needs of the company. With this object in view, forecasting of capital requirements has become a necessity and is taken as a primary step in the organization.

    In every business concern, the capital is required not only to meet fixed and working capital. But also for depreciation, replacement, development, reorganization etc. Thus accurate forecasting helps the organization to employ its capital to the fullest extent and can get the optimum returns on its investment.

    The Need for Business Forecasting:

    Some of the important needs of business forecasting are listed below:

    Production Planning:

    The rate of producing the products must be matched with the demand which may be fluctuating over the time period in the future. Since its time consuming to change the rate of output of the production processes, so production manager needs medium range demand forecasts to enable them to arrange for the production capacities to meet the monthly demands which are varying.

    Financial Planning:

    Sales forecasts are driving force in budgeting. Sales forecasts provide the timing of cash inflows and also provide a basis for budging the requirements of cash outflows for purchasing materials, payments to employees and to meet other expenses of power and utilize etc. Hence forecasting helps finance manager to prepare budgets taking into consideration the cash inflow and cash outflows.

    Economic Planning:

    Forecasting helps in the study of macroeconomic variables like population, total income, employment, savings, investment, general price-level, public revenue, public expenditure, the balance of trade, the balance of payments and a host of other macro aspects at national or regional levels.

    The forecasts of these variables are generally for a long period of time ranging between one year to ten or twenty years ahead. Much would depend on the perspective of planning, longer the perspective longer would be period of forecasting. Such forecasts are often called as projections. These are helpful not only for planning and public policy making. But they also include likely economic environment and aid formulation of business policies as well.

    Workforce Scheduling:

    The forecast of monthly demand may further be broken down to weekly demands and the workforce may have to be adjusted to meet these weekly demands. Hence, forecasts are needed to enable managers to get tuned with the workforce changes to meet the weekly production demands.

    Decisions Making:

    The goal of the forecaster is to provide information for decision making. The purpose is to reduce the range of uncertainty about the future. Businessmen make forecasts for the purpose of making profits. In business, the forecast has to be done at every stage.

    A businessman may dislike statistics or statistical theories of forecasting, but he can not do without making forecasts. Business plans of production, sales, and investment require predictions regarding demand for the product, the price at which the product can be soled and the availability of inputs. The forecast for demand is the most crucial.

    Operating budgets of various departments of a company have to be based upon the expected sales. Efficient production schedules, minimization of operating cost and investment in fixed assets is when accurate forecasts recording sales and availability of inputs are available.

    Controlling Business Cycles:

    It is commonly believed that business cycles are always very harmful in their effects. Abrupt rise and fall in the price level injurious not only to businessmen. But to all types of persons, industries, trade, agriculture. All suffer from the painful effects of depression.

    Trade cycle increase the risk of business; create unemployment; induce speculation and discourage capital formation. Their effects are not confined to one country only. Business forecasting reduces the risk associated with business cycles.

    Prior knowledge of a phase of a trade cycle with its intensity and expected period of happening may help businessmen, industrialist, and economists to plan accordingly to reduce the harmful effects of trade cycle’s statistics is thus needed for the purpose of controlling the business-cycles.