What is business forecasting

What is business forecasting


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Concept of Forecasting

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According to Simpson and Kafka, “In statistics the term (forecasting) refers to the extending or projecting a time series into the future based on past behaviour of the
quantitative data.

According to Anderson; “A forecast is nothing more than an estimate of a future condition.

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Professor Neter and Wasserman, Stated. “Business forecasting refers to the statistical analysis of the past and current movements in the given time series so as to obtain
clues about the future pattern of these movements.

According to Wheldon, “Business forecasting is not so much the estimate of certain figures for sales, production, profits, etc. as the analysis of known data, internal and external, in a manner which will enable policy to be
determined to meet probable future condition to the best advantage.

According to Lewis and Fox, “Forecasting is using the knowledge we have at one time to estimate what will happen at some future moment in time.

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From the above definitions, we can say that adjusting the past economic phenomenon with the present situations to predict the future performances on the basis of sta-
tistical analysis is the business forecasting.

Characteristics of Business Forecasting

The following are the characteristics of business forecasting:

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1.Business forecasting is concerned with future condition

2. Forecasting is done taking into consideration of past data and conditions.

3. The past conditions and events are adjusted with present conditions.

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4, Forecasting is done on the basis of statistical analysis.

5. While forecasting, one should note that it is impossible to forecast the future precisely-there always must be some range of error allowed for in the forecast.

Objects of Business Forecasting

1. To indicate about the possibility about future event.

2. To assist in future policy-making.

3. To be helpful in making alternative decision in case of uncertain conditions.

4.To provide estimate regarding future course of action in advance to businessman, economists and governments

5. To make comparison of future estimated data and actual data on the basis of theory of probability and provide clarification and explanation regarding differences.

Limitations of Business Forecasting

It is necessary to bear in mind the limitations of business forecasting and the caution that is necessary in using its results.

(1) According to Clerence Judd, “The only thing you can be sure in any forecast is that it will contain some error.”

(2) The results of forecasting can, at best be taken as indicators of what is likely to come and nothing more.

(3) According to Morone, “Business forecasting is only valid for short-terms like wheather forecasting which is only valid for next six hours so beyond that it is sheer guess work.

(4) The forecasts depends on chance and dependence on chance is not a good thing.

(5)The forecasts based only on statistical techniques may be harmful.

(6) Complete dependence upon forecasts is not desirable. It may be noted that how so ever reliable a forecast may appear to be, there is always possibility if its failing to materialise.

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Types of Forecasting

There are two types of forecasting:

1) Short-term forecasting: Generally forecasting for the period upto one year is called short-term forecasting. It
is used in the forecastings related to

(i) Scheduling the production policy,
(ii) regulating the supply of raw material,
(iii)deciding the proper price policy.
(iv)certairity in labour supply,
(v) determining the short-term economic requirements.

2. Long-term forecasting: Plan for the period more.than one year and forecasting of that plan is called long.
term forecasting. It is used in study and analysis of
(i) plan of production capacity
(ii) labour power planning etc,

importance of Forecasting

In modern time where business activities are per formed in the atmosphere of risk and uncertainty, forecasting has become a necessary component of business statis-
tics. Business forecasting is very useful in controlling the trade cycles. But it never means that the utility of business
forecasting has confined only to business. It is the fact that all classes of the society have been facilitated by the use of business forecasting,

In brief, the following are the utilities of the business forecasting;

(1) Basis for future plan: A business firm can’t take any economic decision without forecasting how much means will be required in the future.

(2) Helpful in controlling business cycle: In business and commerce, forecasting is a very essential part. One has to forecast about various activities at every step in busi-
ness. It is well known fact that the effect of trade cycles is always very risky in the business. Sudden rise or fall in price level has adverse effect. Trade cycles increase the risk in business, create unemployment, induce speculation and discourage capital formation. Business forecasting helps in planning to reduce the risk of boom or depression associated trade cycles.

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(3) Helpful in determination of appropriate price policy: Future condition of market may be estimated by business forecasting and appropriate price policy may be de-
cided on the basis of business forecasting for controlling the price fluctuation.

(4) Helpful in making appropriate sales policy: Policies for encouraging sales in the market can be made on the basis of business forecasting,

(5) Useful for society: Business cycle does not hurt businessmen only but they affect the whole society. Industry, business, agricultural consumer, labour etc. all are pained with the risky effect of business cycles. Hence the business forecasting helps the whole society by controlling trade cycles.

(6) Useful to the Government: Business forecasting is also useful to the government. Government can guess the disturbances of business world well in advance and can take correct decision by making proper policy at proper time.Government can predict its short term financial requirements on the basis of business forecasting,

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