FORECASTING

Meaning
To Predict or estimate a future
event

Definition
A planning tool that helps
management in its attempts to cope
with the uncertainty of the future,
relying mainly on data from the past
and present and analysis of trends.

FEATURES OF FORECASTING
Forecasting is concerned with future
events.

 It shows the probability of

happening of future events.

 It uses personal observations

It uses statistical tools and techniques .

It analyses past and present data.

Types of Forecasting
Methods
1. Qualitative or Judgmental
method
2. Quantitative method

Qualitative forecasting
method
often called as judgmental method,
is a method in which the forecast is
made subjectively by the forecaster.
They are educated guessesby
forecasters or experts based on
intuition, knowledge, and experience.

Three important Qualitative methods

are :1. Delphi Technique - Develop forecast through
group consensus.

2. Market Surveys Involves the use of

questionnaires, consumer panels & tests of new
products & services

3. Scenario Writing - process of analyzing possible

future events by considering alternative possible
outcomes.

Quantitative method
methodof prediction which assumes that the
patterns that existed in the past will continue on
into the future, and that those patterns are regular
and can be measured.
The objective of this method is to identify the
pattern in historic data & extrapolate this for
future.

Types of Quantitative method

.Moving Average Method - average of
demands occurring in several of the most
recent periods.

Average approach
In this approach, the predictions of all future
values are equal to the mean of the past data.
This approach can be used with any sort of
data where past data is available.

Nave approach
Nave forecasts are the most cost-effective
forecasting model. This forecasting method is only
suitable for time series. Using the nave approach,
forecasts are produced that are equal to the last
observed value. This method works quite well for
economic and financial time series, which often have
patterns that are difficult to reliably and accurately
predict.If the time series is believed to have
seasonality, seasonal nave approach may be more
appropriate where the forecasts are equal to the
value from last season. The nave method may also
use a drift, which will take the last observation plus
the average change from the first observation to the
last observation.

 Weighted moving Average - allows for varying

weighting of old demands.

 Exponential Smoothing - exponentially

decreases the weighting of old demands.

 regression analysis - a functional relationship

is established between variables from the
historical data and then used to forecast
dependent variable values.

Relationship between Planning and

Forecasting

Forecasting is about predicting the future as accurately as

possible, given all of the information available, including
historical data and knowledge of any future events that might
impact the forecasts.
Planning is a response to forecasts and goals. Planning involves
determining the appropriate actions that are required to make
your forecasts match your goals.

 Forecasting is the essence of planning. In fact, forecasting is so

essential to sound planning that it would not be an exaggeration
to state that the success of the plan depends in a large measure
upon the validity and accuracy of the forecast.
Forecasting as an Aid to Planning
Forecasting is nothing but prophesying the future. The element of
error and risk is inevitable. But there is no way for escaping from
this. The best alternative would be to make use of the existing
forecasting instruments in a judicious manner, in a discriminating
way, allowing for the risk factor involved and plan accordingly.
Planners, in majority of cases, do not know with certainty the
conditions which will exist in future, when activities take place. As
a result, they are forced to make certain assumptions regarding
future. This is forecasting. Forecasting provides pertinent
information for successful planning.Planning without forecasting
proves to be wastefuland useless.

THANKYOU