BUSINESS FORECASTING

• DEFINATION: “Business forecasting is the analysis of

statistical data and other economic, political and market
information for the purpose of reducing the risks involved in
making business decisions range plans”
-L.S.SILK
• MEANING: Business forecasting refers to estimate of future
conditions on the basis of scientific analysis of available
knowledge and information related to past trends, present
conditions and expected possibilities of business activities.

• IMPORTANCE OR UTILITY OF BUSINESS FORECASTING

1. IMPORTANCE FOR BUSINESS: In each business
estimates and probabilities have important place,
because each businessman determines his policies and
targets on the basis of these estimates and probabilities.
2. CONTROL ON TRADE CYCLES: An important feature of
business world and specifically in free economies is the
flow of trade cycle, in which periods of boom, recession
and recovery occur. The expectations of these periods
can probably be estimated on the basis of business
forecasting and accordingly necessary steps maybe
taken to minimize the harmful effects of trade cycle.
3. USEFUL TO SOCIETY: Business forecasting does also
help in different segments of society such as consumers,
workers, farmers etc. to plan their activities properly.
Consumers can determine the purchase and storage of
commodities; workers can take decisions in respect of
 their wages and terms of employment and farmers can
decide the pattern and volume of crop production.
4. IMPORTANCE TO GOVERNMENT: Business
forecasting plays a very important role in the
determination of economic policies of the government.
The decisions of government relating to control on prices,
credit, foreign trade etc. are taken on the basis of
business forecasting. Government determines various
targets of five-year plans also on the basis of future
estimates.

• LIMITATIONS OF BUSINESS FORECASTING

1. ELEMENTS OF UNCERTAINITY: Forecasting should
never be taken as cent-percent certain because future
can never be perfectly definite and certain as the only
thing certain about future is that it is uncertain.
2. APPROXIMATE ESIMATE: Forecasting should
always be viewed as approximate estimate, i.e.,
business decisions should be taken keeping in view the
possibility of some more or some less also, as, the only
thing you can be sure in any forecast is that it will
contain some error.
3. DEPENDENCE ON ASSUMPTIONS: Business
forecasting is based on certain definite assumptions. If
difference arises between assumptions and realities,
the forecasting may be wrong.
4. PROPER ADJUSTMENT OF DATA AND
SUBJECTIVE APPROACH: Successful forecasting
requires expert blending of economic theory with
significant statistical expertise and through familiarities
with the relevant statistical data.
 5. CONTIONUOUS REVIEW AND REVISION:
Forecasting is not a one-shot operation. It should be
reviewed continuously in the light of latest informations,
conditions and changes: and if necessary it should be
modified accordingly.
• METHODS OR TECHNIQUE OF BUSINESS FORCASTING
1. INDEX NUMBERS OR BUSINESS BAROMETERS:
index numbers are regarded as the indicators of business
activity. With the help of index numbers, changes in
business activities are analysed and possible changes in
future are forecasted. Index numbers could be general
index which is prepared by combining different activities
in the field of production, trade etc., or specific index
numbers which is for a particular industry or business.
2. EXTRAPOLATION OR MATHEMATICAL
PROJECTION: In this method the value at some future
point of time is projected on the basis of data related to
some variable for a certain period. In this method, it is
assumed, that the past behaviour of data will be
maintained in the future also.
3. TIME SERIES ANALYSIS: if data for several years are
available and long-term trend, seasonal variations and
cyclical fluctuations in that data are visible, in such a case
time series analysis can be applied.in this method first all
various components of time series are separated and
then business forecasting is made by putting them back
together through the process of SYNTHESIS.
4. REGRESSION ANALYSIS: in this method, estimates are
made on the basis of calculation of nature and degree of
mutual relationship between different variables for
example relationship between rainfall and agricultural
 production etc..The assumption of this technique is that
there is functional relationship between different variables
and on the basis of such relationship forecasting can be
made.
5. ECONOMETRIC METHOD: This method is developed by
combination of economic theories, mathematical
calculations and statistical procedures. It assumes that
the behaviour of economic system is guided by numerous
economic factors which can be expressed by
econometric models developed on the basis of various
simultaneous equations.
6. OPINION POLL: It is a subjective technique of forecasting
in which views or opinions of related persons and experts
are solicited in respect of possible changes in future and
their effects and forecasting is made on the basis of
analysis of this collection. This technique is very much
popular in the area of sales management.
7. FACTOR-TESTING METHOD: Under this method, a
forecast is made of business conditions by descriptive
analysis of various factors that are going to affect the
future economic movement. Effects of such factor are
studied separately. The favourable and unfavourable
effects of each factor are reviewed and forecasting is
made keeping in view the effects of all possible causes
and factors expected to occur in future.
CHOICE OF A METHOD OR TECHNIQUE OF FORECASTING
Each method of forecasting has its own utility and limitations. While
selecting any specific method, one will have to consider various
factors such as context, objective of forecasting, availability if data,
degree of accuracy, time period of forecasting, availability of time,
money and other resources etc..It should be considered that how
the available data and information can be best utilised and hoe the
required level of accuracy can be obtained? It is important that in
modern era of liberalisation and globalization, effects of
international environment and technology developments will also
have to be considered for choosing a method or technique of
business forecating.