Forecasting helps us to know the future. It also helps us to compare, to estimate and to analyse the data to arrive at the estimated results. It leads to regular investigation of different aspects of production and management within and outside the organisation. Forecasting prepares a ground to work together and brings better co-ordination, co-operation and control in the organisation.
Under forecasting, future prospects, stability and the discrepancies are properly weighed and studied. This helps the management to remove any hindrances that may come in the way of management.
Thus, company results are compared with the estimated ones, the other element which is quite conspicuous with forecasting. Whenever large difference is found, further investigation is undertaken to find out the reasons for such discrepancy.
Forecasting, therefore, helps to know the expected profits or losses and just by going through certain reports and records of the company, enables the forecaster to take necessary decisions. Decision-making becomes better and easier when forecasting is undertaken on scientific basis.
James W. Redfield has summarized the essential elements as follows:
- Developing the ground work:
It carries out an orderly investigation of products, company and industry. The group work preparation requires a thorough study, investigation and analysis of the company, its products, its market share, its organisational structure and the industry. The investigation will involve the past performance of all these factors, their growth over a period of time and the extent of their inter-relationships and inter-dependence. The aim is to build a foundation on which future estimates can be based.
- Estimating future business:
This follows a clear-cut plan for working out future expectancies in the form of natural undertaking with key executives. The future expectancy of the business can be reasonably computed from the past data as well as the input from the key executives of the organisation, sales personnel and other specialists.
This forecast is developed with the participation of the key personnel and is officially communicated to all. Thus, all these people assume responsibility for meeting these forecasts and accountability for any deviations from this forecast.
- Comparing actual with estimated results:
Checking the attained with anticipated results of the business periodically and tracking down reasons for major differences. The forecast estimates over the future years provide benchmarks against which the actual growth and results can be measured and compared. If there are significant variations between the two, one way or another, the reasons for such deviations can be investigated and analysed.
- Refining the Forecast Process:
Once familiarity with estimating the future of the business is gained through practice, sharpening the approach and refining the procedure becomes quite easy. Thus, these constant revisions and refinements and improvements would add to the experience and skill in forecasting, since proficiency in forecasting can only be gained through practice and experience.
The above elements indicate a systematic approach to the problem of forecasting. As a materiality, these elements are found in any research procedure.
Features of Forecasting:
Based on the above definitions the following features are explained below:
- Involvement of Future Events:
Forecasting relates to future events. Forecasting is the essence of planning because planning also aims at deciding what is to be done in the future.
- Depends upon Past and Present Event:
Actually, forecasting is made by analyzing the past and present relevant data. It takes all the factors into account, which affect the functioning of the enterprise.
- Happening of Future Events:
Forecasting defines the probability of happening of future events. Therefore, happening of future events can be precise only to a certain extent.
- Makes use of Forecasting Techniques:
As can be gathered from what has gone before that forecasting is a systematic attempt to probe the future with a view to drawing certain useful inferness. Such a probing obviously demands a proper and full analysis of known facts with the help of various qualitative and quantitative forecasting techniques.