Forecasting

Forecasting is the process of projecting past sales demand into the future. Implementing a forecasting
system enables you to assess current market trends and sales quickly so that you can make informed
decisions about the operations . ( A statement about future )

Features of Forecasting

Here are some of the features of making a forecast:

1. Involves future events

Forecasts are created to predict the future, making them important for planning.

2. Based on past and present events

Forecasts are based on opinions, intuition, guesses, as well as on facts, figures, and other
relevant data. All of the factors that go into creating a forecast reflect to some extent what
happened with the business in the past and what is considered likely to occur in the future.

3. Uses forecasting techniques

Most businesses use the quantitative method, particularly in planning and budgeting.
What are Forecasting Methods?

Forecasting is estimating the magnitude of uncertain future events and providing different results with
different assumptions. Top forecasting methods include Qualitative Forecasting (Delphi Method, Market
Survey, Executive Opinion, Sales Force Composite) and Quantitative Forecasting (Time Series and
Associative Models). Not all methods would necessarily serve the purpose of forecasting, the decision-
makers should understand what type is best suited for the business

Forecasting methods can be broadly classified into:

1. Qualitative Methods – These methods are based on emotions, intuitions, judgments, personal
experiences, and opinions. This means that there is no math involved in qualitative forecasting
methods. Delphi Method, Market Survey, Executive Opinion, Salesforce Composite are part of
this type of forecasting.

2. Quantitative Methods – These methods depend wholly on mathematical or quantitative

models. The outcome of this method relies entirely on mathematical calculations. Time
Series and Associative Models are a part of this type of forecasting.
Qualitative Methods
#1 – Delphi Method

The agreement of a group of experts in consensus is required to conclude in the Delphi method. This
method involves a discussion between experts on a given problem or situation. An argument or
brainstorming is done to complete that everyone involved in the debate agrees to.

#2 – Market Survey

In a market survey, interviews and surveys of customers are made to understand the task of the
customer and tap the trend well in advance to deliver the right product or service according to the
changing needs of the customer.

#3 – Executive Opinion

As the name suggests, the executives or managers are involved in such forecasting. This method is very
similar to the Delphi method; however, the only difference here is that the executives may or may not
be experts of the matter in question, albeit they have the experience to understand the problem or
situation and formulate a forecasting method that would bring out the best possible result.

#4 – Sales Force Composite

The information and intuition of the salesperson determine the needs of the customer and estimate the
sales in the particular region or area assigned to the salesperson. This information is vital in forecasting
the needs of the customer, which can be used to make necessary changes in the business to meet the
needs of the customer and identify the sales volumes beforehand.

Quantitative Methods
#1 – Time Series Models

Time series models look at historical data and identify patterns in the past data to arrive at a point in the
future based on these historical values. Since the historical data has a pattern, it becomes evident that
the data in the future should also have a pattern, and this method looks at cracking the pattern in the
future so that there is very little deviance from the actual calculations and the outcomes in the real
world. Below is the example of a time series model
5.Random variation are residual variation that
remain after all other behavior have been accounted
for

#2 – Associative Models

Associative models look at the variable that is being forecasted as being related to other variables in the
system, which means each variable is associated with the other variable in the system. The forecast
projections are made based on these associations