Classification of Business Forecasting
Business forecasting has many dimensions and varieties depending upon the utility and application.
The three basic forms are as follows:
Economic Forecasting: this forecasting is related to the broader macroeconomic and microeconomic factors prevailing in the current business environment at the macro level and working in a particular industry at the micro level.
Demand Forecast: organization conducts analysis on its pre-existing database or conducts a market survey to understand and predict future demands.
Operational planning is done based on demand forecasting.
Qualitative and Quantitative Techniques of Forecasting
Technology Forecast: this type of forecast is used to forecast future technology upgradation.
Techniques of Forecasting:
Qualitative forecasting technique.
Quantitative forecasting technique.
Qualitative Techniques:
The jury of executive opinion (Delphi technique)
Salesforce estimates
Customer expectations
The jury of Executive Opinion:
The jury of expert opinion sometimes referred to as the Delphi technique; involves soliciting opinions or estimates from a panel of "experts" who are knowledgeable about the variable being forecasted.
In addition to being useful in the creation of a sales or demand forecast, this approach is used to predict future technological developments.
This method is fast, less expensive and does not depend upon any elaborate statistics and brings in specialized viewpoints.
Sales Force Estimates:
This approach involves the opinion of the sales force and these opinions are primarily taken into consideration for forecasting future sales.
The salespeople, being closer to consumers, can estimate future sales in their own territories more accurately.
Based on these and the opinions of sales managers, a reasonable trend for future sales can be calculated.
These forecasts are good for short-range planning since salespeople are not sufficiently sophisticated to predict long-term trends.
This method known as the "grassroots" approach lends itself to easy breakdowns of product, territory, customer etc.,
Customer Expectations:
This type of forecasting technique is to go outside the company and seeks subjective opinions from customers about their future purchasing plans.
Sales representatives may poll their customers or potential customers about the future needs for the goods and services the company supplies.
Direct mail questionnaires or telephone surveys may be used to obtain the opinions of existing or potential customers.
This is also known as the "survey method" or the "marketing research method" where information is obtained concerning.
Customer buying preferences, and advertising effectiveness and is especially useful where the target market is small such as buyers of industrial products, and where the customers are cooperative.
Quantitative Techniques:
Quantitative techniques are based on the analysis of past data and its trends.
These techniques use statistical analysis and other mathematical models to predict future events.
Some of these techniques are:
Time series analysis
Economic models
Regression analysis
Time Series Analysis:
Time series analysis involves the decomposition of historical series into its various components.
In time series analysis, the future is taken as some sort of an extension of the past.
When the various components of a time series are separated, the variations of a particular phenomenon, the subject under study stay, say price, can be known over the period and projections can be made about the future.
A trend can be known over some time, which may be true for the future also.
However, time series analysis should be used as a basis for forecasting when data are available for a long period and tendencies disclosed by the trend and seasonal factors are fairly clear and stable.
Economic Models:
Utilize a system of interdependent regression equations that relate certain economic indicators of the firm's sales, profits etc.
Datacentre or external economic factors and internal business factors are interpreted with statistical methods.
Often companies use the results of national or regional econometric models as a major portion of a corporate econometric model.
These models allow management to investigate and major segments of the company's business on the performance and sales of the company.
Regression Analysis:
Regression Analyses are statistical equation designed to estimate some variables such as sales volume, based on one or more ‘independent’ variables believed to have some association with it.
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