Forecasting is defined either an estimate or inference of a future event. Forecast may not always be an accurate estimate or inference as it is always done on the past trend.
However, forecast provides an effective basis for planning different activities of an organization. From managerial point of view, forecasting is important for planning, scheduling and controlling the system to achieve efficient result.
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Steps in Forecasting:
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Following basic steps are required for effective forecasting:
1. Identify the objectives for which forecasting is done. From manager’s point of view, forecasting objectives may be reducing the problem of overloading in serving the customers by enhancing the number of service counters, initiate changes in design of a product and measure customer’s response pattern, etc.
2. Determine the time period of forecast, which may be long run or short run. Depending on the time period, managerial decisions and actions may vary. To illustrate, if an organization requires extra manpower for a period less than one year, instead of direct recruiting, they may avail the services of some outsourcing agencies (who make people available on hire).
3. Select the right forecasting method in line with the objectives of the organization and the time frame. To take an example, annual sales forecast (for an existing organization) is better done using Time Series Analysis, while Delphi Technique or market research methods are best applied where collective opinions are required to be assessed.
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4. Collect required data and information matching with the selected forecasting method. For the time series analysis, past data is collected, whereas, for market research, the primary data are collected by conducting survey.
5. Implement results for managerial decisions (planning and control).
6. Periodically evaluate forecasting, by assessing degree of error and reliability and revise.