Forecasting is the estimation of type, quantity and quality of future work e.g, sale, demand etc. Through forecast of demand, we evaluate the factor in the environment which influence the operation of the firm and formulate annual plan. Based on the forecast, we plan for production, material procurement, cash flows, inventory level, manpower, plant capacity etc. Forecasting, therefore, plays a crucial role in the development of plans for the future.

Forecasting is an essential activity to be carried out prior to planning, with the aim to estimate the future work, may it be regarding sales or production or any other aspect of business activity.

Forecasting can also be defined as; the production for future, which by its nature is unknown. The aim of a good forecast is to minimize the uncertainties of the unknown future.

Future predictions are made under two circumstances:

(i) When the firm does not change the course of his action, and

(ii) When the firm is undergoing some changes. Variable factors like, prices of substitutes and competitors, design, quality etc.

For efficient forecasting following steps are necessary:

1. Identification of objectives.
2. Determine categories of product in which it falls e.g. capital goods, consumer durables (like T.V, refrigerator, watch etc), non-durable goods (like food, beverages etc).
3. Selecting a proper method.
4. Interpretation of results.


Purposes of Forecasting

- Changing on size and characteristics of population.
- Saturation limit of the market.
- Tastes and preferences of consumers.
- Income level of consumers.
- Buying power of the consumers.
- Replacement/new demand.
- Helps in deciding marketing strategies.
- Helps in material planning, product planning, production planning, manpower planning, financial planning, sales planning and budgeting.

Sales Forecasting

A sales forecast is an estimate of the amount of sales for a specified future period under a proposed marketing plan or program. Sales forecast can be defined as; an estimate of sales is terms of money or physical units for a specified future period under a proposed marketing plan or program and under an assumed set of economic and other forces outside the unit for which the forecast is made.

Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time. Further, it makes the arrangement in advance for raw materials, equipments, labour, etc. Some firms manufacture on the other basis, but in general, firm produce the material in advance to meet the future demand.

Also See: Types of Forecasting , Business Forecasting

Next Chapters

Estimating Procedure
Difference between Estimating & Costing
Depreciation & Obsolescence
Material Cost Calculation
Calculating Labor Cost
Direct and Indirect Expenses
Component Cost
Machine Shop Estimating
Forging and Forging Types
Starting an Organization
Welding Cost Estimation
Jigs and Fixtures
Qualities of an Entrepreneur
Starting Small Scale Industries
Budget and Budgetary Control
Supply & Law of Supply
Exchange and Barter Exchange
Classification of Market
Money and Types of Money
Trade Cycle
Break Even Analysis
Financial Management

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