Forecasting is an assumption of outcome, before it actually occurs. It is a process where a person makes statements about events whose actual outcomes has yet to come. Prediction is somewhat similar to forecasting, but it is more generic term. To deliver accurate or close to actual outcome forecast, statistical methods like Time series, cross-sectional or longitudinal data, or alternatively to less formal judgmental methods are used. In some cases the usage of both the term may differ: for example, in hydrology, the terms "forecast" is used to show the estimates of values at certain specific future times, whereas “prediction" is used for more general estimates like the number of times flood may occur in …show more content…
A forecasting is a planning tool used by the management to cope with the uncertainty of the future. Forecasting is mainly based on the reliable data from the past and present and analysis of trends.
Forecasting is based on certain assumptions, knowledge, and judgment. There are chances of error in assumptions, and it may result in magnified error in forecasting.
Forecasting isspecific decision making tool which is implemented by several businesses to provide support in budget making, planning and estimation of future growth. So, forecasting is all about prediction of future outcomes and it is based on the past events and the insights of management.
Two types of forecasting are popular in the scene: based over judgment and statistics. A trustworthy forecast will depend upon both of them to improve the strengths and shun away weakness.
Judgement Forecasting: Judgement forecasting is about just intuition and experience. The human brain can explore situations and people in a totally different way, and machines like computer cannot respond like human brain. But the human brain have some limitations,it cannot analyzethe big chunks of data easily. Judgment forecasting is about the days when the historical data is nowhere to be seen or very little, some of them include: new product launch, competitor actions or new growth …show more content…
Promotion of new business:Forecasting plays crucial role in setting up a new business. Starting up a new business is full of risk and uncertainty. With the help of forecasting one can predict the chances of success or failure in the market.The success of a business largely depends on how sound forecasting is? Proper forecasting reduces the chance of failure.
2. Estimation of financial requirements:Forecasting helps in determiningthe financial requirements of a concern. Managing the capital efficiently is one of the most challenging tasks that any management has to deal with. But with sound financial forecasting, it is possible to manage the capital without putting your budget at risk.Financial estimates are mostly based on probable sales and cost.
3. Smooth and continuous working of a concern:‘Forecasting of earnings’ predicts the smooth and continuous working of an enterprise; it is motivating for new establishments. By forecasting, one can get the clear idea about the expected profits or losses. The purpose of a forecast is to reduce in black and white the details of working of a