Forecasting Methods & Importance

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What is Forecasting

Definition : Forecasting is a process of estimating future

based on the analysis of past and present data or behavior

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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

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Importance of Forecasting

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• 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

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• 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

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Forecasting methods :

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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 highThis method is useful for consumer durables like washing powder, tooth pastes, soaps, shampoos etc

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Forecasting methods :

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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

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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

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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

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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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