Methods Of Business Forecasting
“The forecast for the industry or management as a whole is ascertained first and then the particular forecasts for the various activities of the business are established. The process of forecasting is, thus, indirect and the responsibility for the success in forecasting lies with the top management. ”
There are various methods in use to undertake accurate business forecasting. Direct or bottom-up method helps entrepreneurs to collect information or data for their enterprise and helps them to prepare their own forecasts. On the basis of these forecasts, the forecast for the firm as a whole is then undertaken. Thus, the responsibility of successful forecasting lies directly with various departments and people in the organization.Indirect or top-down method is just the reverse of the direct or bottom up method. In this method the forecast for the industry or management as a whole is ascertained first and then the particular forecasts for the various activities of the business are established. The process of forecasting is, thus, indirect and the responsibility for the success in forecasting mainly lies with the top levels of management.
Historical method is also helpful in making exact forecasting. This method refers to the projection of trends on the basis of past events. The historical sequence of events is analyzed as a basis for understanding the present situation and forecasting the future trends. The past recurring trends are associated with the corresponding cause and effect phenomenon in the future.
The important advantage of this method includes the past information or records and present information. However the main limitation of this method is that the future trends may deviate drastically from the normal path indicated by the past events. Further it may not be possible to find trend or develop correlation between cyclic movement of past data or other variables, which have bearing upon them.
Businessmen too forecast future trends on the basis of observation and investigation using the deductive method. In addition to the critical analysis of the past events to draw future inferences, the subjective evaluation and conclusions for deducing discretion, experiences and institution of the forecasters also matter a lot. This method can be regarded as more dynamic in character as it takes into account not only the historical sequences of events but also the latest developments.
Joint opinion method utilizes the collection of opinions, judgments and remarks of various experts. A committee for business forecasting is formulated to take the joint view of various members. Scientific business forecasting is also a useful method for making exact policies. Forecasting in this method is done on the scientific lines.
Author - DeeKay
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