Introduction oVery Basic of business Planning. oA technique of Anticipation ; Future Predicting. oHenry Fayol - prevoyance i.e. Looking ahead, a scientific analysis of future events. oIt provides Raw material for business planning & budgeting. oDone to recognize problems & opportunities & turn them into plans & action.
Definitions oAllen L.A. : Forecasting is a systematic attempt to probe the future by inference from known facts. oC. B. Sultan : Business Forecasting is the calculation of probable events to provide against future. It, therefore, involves, a look ahead in business & an idea of pre-determination of events.
Techniques of Forecasting There are Two basic types viz. Statistical Methods & various other methods. (1) Historical Analog Method : oForecasting on the basis of same type of event which had taken somewhere else in the past. oE.g.: India – U.S.A – Development & related demand. oInquiry about subject from seniors.
(2) Survey Method : oSurvey of Buyers intention Method. oThe most direct method oopinion of consumers. oasking consumers what they are planning to buy o costly.
(3) Business barometer Method : oIn economy there are certain indicators like index number which may be useful to measure the state of economy between two or more periods. oEconomic indicators Method. oPurchase of car & demand of petrol, spare parts.
(4) Time Series Analysis : oTrend Projection Method. o forecasting on the basis of past experience. oRecord of past performance. oUse of Graphs. oexponential method. oSudden turning points of trade cycle can upset the forecast.
(5)Regression analysis Method: ocorrelation of two variables. oIf two variables are correlated in a definite manner, the behavior of one of them will affect the behavior of the other. oPositive & negative correlation. oincrease in income & demand of luxury goods.
(6) Combination of methods : ouse of two or more methods. oE.g.: Historical Analogy method + Survey Method : to get past trend as well as future desire of consumers.
Significance ( Importance ) of forecasting 1)Forecasting for new business establishment. 2)Key to Planning. 3)Exactness in the managerial decision. 4)Co-ordination & control. 5)Success in organization. 6)For financial requirements. 7)Useful for other activities.
A new business is established for achieving a certain objects. Which activities should be performed is dependent on expected outcomes. Expected outcomes depend on future events. Hence forecasting is important to achieve objects.
Planning decides the future course of action. It is not possible to formulate future plans without forecasting. Forecasting provides key information and facts relating to the future for planning decisions. Forecasting provides the knowledge regarding the nature of future conditions. Without forecasting planning is impossible.
In managerial decisions exactness and accuracy can be brought by forecasting. It improves the quality and validity of managerial decisions. Sound decisions regarding production can be taken with the help of forecasting.
It helps in bringing co-ordination and unity in the. plans and efforts of subordinates. It creates team-spirit in staff-members. The forecasting also facilitates managerial control. by providing relevant information.
Forecasting contributes in overall success of business. It also enables the organization for better utilization of resources by extending control in several directions. It alerts the management against business cycle.
Finance is necessary for smooth functioning and proper growth of business. By forecasting financial requirements can be accurately forecasted. A business avoid all financial difficulties.
Limitation of forecasting oForecasting is based on certain assumptions. But these assumptions may not hold good. oForecasting are not perfectly correct, they only indicate trend of future happenings. oThe business conditions are dynamic & ever changing. It is difficult to forecast accurately. oFor making forecasts collection of certain information is necessary. It is a costly affair & it is also time consuming.