Forecasting in Management- Methods,features,advantages,importance and process

1. Forecasting in
Management

2. Objectives
• At the end of the chapter you will be
able to understand
– The meaning, definition and features of
forecasting
– Know about the importance of forecasting
– The areas of forecasting and its
advantages
– Difference between the forecasting and
planning

3. Introduction
• Forecasting is the technique of
estimating the relevant future events
and problems on the basis of past and
present behavior or happenings
• Forecasting depends upon an
analysis of past events and current
conditions

4. Meaning and
Definition
• Meaning of Forecasting
– Forecasting the systematic guessing of
future course of events with the help of
analysis of present and past events
• Definition of Forecasting
– According to Webster’s new Collegiate
Dictionary, ‘A forecast is a prediction and
its purpose is to calculate some future
events or conditions

5. Features of Forecasting
• Forecasting is concerned with the
future events
• Impact of future events has to be
considered in the planning process
• Forecasting considers all the factors
which affect the organizational
functions

6. Forecasting Process
• Forecasting period may be short-term
or long- term. In either of the cases
certain stages or steps have to be
passed as below
• Thorough preparation of foundation
– Detailed investigation and complete
analysis of the company are necessary
for forecasting
– Forecasting is based on the foundation

7. Forecasting Process
• Estimation of future
– The prosperity of the future can be
estimated with the help of past
experience and performance
• Collection of results
– All the information can be collected
– Nothing can be omitted and irrelevant
information can be avoided while
collecting results

8. Forecasting Process
• Comparison of results
– The actual results are compared with
estimated results to know derivations
• Refining the forecast
– The forecast can be refined in the
light of derivations which seem to
be more realistic

9. Importance of
Forecasting
• Forecasting helps the
management in the following
ways:
• Pivotal role in an Organization
– Planning is the backbone of effective
functioning of an organization
– Planning is based on forecasting

10. Importance of
Forecasting
• Development of a business
– Business is established in order to
achieve specified objective
• Implementation of project
– Forecasting is an important factor which
enable the entrepreneur to get success
• Primacy to planning
– Planning can not be done without the
forecasting

11. Importance of
Forecasting
• Co-ordination
– Forecasting helps management
executives in effective co-
ordination indirectly
• Effective control
– Forecasting can provide adequate
information for exercising effective
control
• Key to success

12. Areas of Forecasting
• Accurate forecasting is necessary for
efficient management. So making
accurate forecasting is of utmost
necessity in the following areas
• Competition
– It is necessary to predict the strategies
followed by the competitors
– Forecasting helps the management to
enhance the market share of the

13. Areas of Forecasting
• Supply of labor
– The supply of labor is changing in its
structure
– The three categories of labors are 1)
skilled labor, 2) semi-skilled workers, 3)
unskilled workers
– No industry can be expanded or
modernized without adequate labor
force

14. Areas of Forecasting
• Economic condition
– The strength of any business unit
depends on its economic condition
– Good economic condition assists in the
growth of the company
• Growth trend
– A forecast in growth trend helps the
management to decide the opening level

15. Areas of Forecasting
• Social change
– Forecasting can predict the convenience
and comforts that would be enjoyed by
the consumers in future
• Political change
– Frequent changes I politics bring about
changes in the policy of government
towards business

16. Areas of Forecasting
• Technology
– The invention of new technology may
change the operations on an
organization
• New laws and regulations
– A meticulous adoption of new laws and
regulations is necessary for effective
functioning of an organization

17. Forecasting methods
• Various techniques of forecasting are
used in the field of business because
the future of any business can never
be predicted with certainty. Some
techniques are as below:
• Similarity events methods
– It is also called as Historical analogy
method
– The similarity of events of past and

18. Forecasting methods
• Jury of executives options
– The opinion of experts is sought under
this method and the meritorious one is
accepted
– The reasons for favoring a particular
opinion by an expert in known to the
management
• Survey method
– Field survey can be conducted to

19. Forecasting methods
• Sales person’s opinion
– A reasonable sales trend can be
predicted based on the opinions of sales
persons
• Business barometers
– Index numbers are used to measure the
state of condition of business between
two or more periods
– However, index numbers do not give an
assurance for success.

20. Forecasting methods
• Expectation of consumer
– Under this method, a survey is
conducted in order to know the future
needs of consumes
• Time series analysis
– In this method, the future is
forecast on the assumption that
the past activities are good
indicators of future activities
– Time series analysis can be applied

21. Forecasting methods
• Delphi method
– This method was developed by Rand
corporation in 1969 to forecast the
military events
– this method is useful when past data is
not available
• Extrapolation
– Means estimation of future behavior
from the known data

22. Forecasting methods
• Regression analysis
– Used to find out the effect of changes of
the relative movements of two or more
inter-related variables
– Regression analysis helps in isolating the
effects of the factors that are responsible
for the changes made in variables to a
great extent

23. Forecasting methods
• Input and output analysis
– Under this method, a forecast can be
made if the relationship between the
input and output is known
– The prevailing inter relationship among
the various sectors of the company can
be well established

24. Forecasting methods
• Econometric model
– Also called as casual model
– The complex relationship of various
variable is responsible for the future
behavior of one variable
• These techniques can be divided
in to two broad categories
– Qualitative techniques: based on human
judgment
– Quantitative techniques: based on the

25. Advantages of
Forecasting
Forecasting helps a businessman in a
number of ways. Some of the
advantages of the forecasting are:
• Facilitates planning
– Forecasting facilitates the planning
function of management.
– Provides basis for preparing a possible
planning

26. Advantages of
Forecasting
• Ensures – coordination
– Forecasting of an organization can not be
done by an individual, which involves
group efforts
• Easy controlling
– Control is not possible in absence of
forecasting.
– Forecasting helps the management
to exercise control

27. Limitations of
Forecasting
• Forecasting is based on certain
assumptions and can give wrong
results if the assumptions are faulty
• Too much expectations from
forecasting will cause
disappointment
• It is not possible to forecast correctly
since it is very difficult to collect
reliable information

28. Difference between
Forecasting and
Planning
No. Forecasting Planning
1 Basis for planning Basis for future plan of
action
2 No decision can be
taken without help of
forecasting
Helps to arrive at
certain decisions
3 Done at middle or lower
level of management
Done at top
level of
management
4 Few members are
involved
Large number of persons
5 Does not stimulates
activity among
employees
Stimulates some
activity to achieve
the objective
6 Tool for planning Not a tool for forecasting

29. Difference between
Forecasting and
Planning
• Forecasting is an integral part of
planning process
• Forecasting provides scope for
guessing of future happenings
• Forecast serves as a guideline to
executives for proper planning

30. Summary
• Forecasting involves detailed analysis
of the past and present events to get
a clear idea about probable events in
future
• It is very important as it plays a
pivotal role in an organization
• Accurate forecasting is necessary
for efficient management

31. Summary
• It uses some methods like
similarity events method,
executive method etc.
• It requires high degree of skill
• Basis for planning
• Forecast is important as it considers
the factors which effect proper

32. End of Chapter 4
Forecasting