Question

Briefly describe the following steps of the forecasting process. 1. determine the purpose of forecast 2. Establish time horizon 3.Gather &analyze relevant historical data 4. Select a forecasting technique 5. Prepare forecast 6. Monitor the forecast

Answer 1

Forecasting

Forecasting is the process and strategy of the business to estimate the future. Forecasting helps the business to modify and update the current business strategy to face future challenges. In other words, we can say that analyzing the historical data and market situation business can predicate the future. Example: Jan Sale: 1,000, Feb Sale: 1100, March Sales: 1210, we can forecast the April Sale by observing the previous 3 months sale relation, every month sales increase by 10% of Previous Month, so we can say that April sale would be (1210+121) 1231.

Steps of the Forecasting Process

Forecasting is the process of systematically doing the predication and estimation about the future. Let' s understand each stage of the forecasting.

1. Determine the purpose of Forecast: The first stage of forecasting is objective and aim behind the estimation and prediction. Before going anywhere we should know about the target destination that helps us to give us direction and path to achieve our objective. Example: Business Wants to forecasts for Sales.

2. Establish Time Horizon: After determining the objective of the Forecast, organizations need to set the time horizon for the forecast. It removes the chances of ambiguity and improves transparency in the workplace. Time plays a major factor in forecasting. Narrow Time Horizon gives fewer changes, and wider Time Horizon gives vast changes. Example: Estimatatio of Sale of One Month and 5 Years.

3. Gather & Analyze relevant Historical data: Forecasting is based on various historical data and information. For Forecasting, organizations need to gather various information like previous records, competitors' policy, market situations, etc. Data make the forecasting process more effective and transparent. Example: Previous Sale Records, Competitor Pricing History, etc.

4. Select a Forecasting Technique: After collecting the data, the organization needs to select and apply forecasting techniques for the arrangement and result of the data. Every Forecasting Technique has a different purpose and use. Organizations need to select the relevant techniques for forecasting. Example: Straight Line techniques for Constant Growth, Moving Averages for Repeated Forecasts.

5. Prepare forecast: After Selecting the Forecasting Technique, the organization prepares the various forecasting and information. Forecasting preparation is the most analytical work to understand each aspect of the Forecasting Process and convert the various information into meaningful forecasting. Example: Estimation Sheet of Raw Material Needs.

6. Monitor the Forecast: After developing Forecast, the business needs to continuously monitor and check the accuracy of the forecasting stages. This will help to improve future forecasting and improve the current level of forecasting. Example: Compare the actual sales and forecast sales.

In short, we conclude that the forecasting process is the continuous process and businesses need to develop the skill to forecast the future for planning and management of future in the advances. That helps the business to protect from any uncertainties and utilize future opportunities.

All the very best, take care.