AME AD kh a Ms el f S 3:2 Forecasting Modern age is the era of forecasting. All of us are interested in forecasting of some type or the other. For example : A house- st the requirements of food stuffs like wheat and son When there is a ample stock of foodgrains in wife may fore pulses in the s the market. A student may forecast some important questions before the commencement of an examination. The astrologer forecasts the future prospects of a man or an institution. Thus, everyone of us may forecast in the sphere of human activity. Forecasting is a must in today’s uncertain times. | 3.2.1 Meaning and Definitions of Forecasting | To forecast means to peep into the future. It is a process of estimating the relevant events of future by analysing the past and sting refers to the systematic present behaviour. Business fore¢ analysis of past and present conditions with the aim of drawing inferences about the future course of events. Forecasting is a systematic attempt to probe the future on the basis of known facts. of events provides information Thus, the past and present analysis about the future trends. Definitions of Forecasting 1) Louis Allen : "Forecasting is a systematic attempt to probe the future by inference from known facts." 2) Neter and Wasserman : "Busine: the statistical analysis of the past and current movement in the given time series so as to obtain clues about the future of those forecasting refers to movements.” 3) C.E. Sultan : "Business forecasting is the calculation of probable events to provide against the future. It therefore, involves a ‘look ahead’ in business and an idea of pre-determination of events and their financial implications as in the case of budgeting.” 4) Leo Barnes : "Business forecasting is the calculation of reasonable probabilities about the future based on the analysis of all the latest relevant information by tested and logically sound statistical and econometric techniques, as interpreted, modified 118 @ Principles And Functions of Management za eeGO) lied in terms of execul e's Personal judgement and and av is of his own busines industry or trade.” knows voter F. Drucker “Predictions, concerning five, ten or = s guesses. Still, there is a difference en years ahead are alwa ‘an ‘educated guess’and a ‘hunch’. For e.g. between a s based upon a rational appraisal of the range of and guess that is simply a gamble.” Drucker's educated ly justified as it is based on a rational appraisal. led forecasting. fiftes between guess UH probabil guess is sure Educated guess may thus be Characteristic features of Forecasting The following are the feaiures of forecasting based on the above definitions 1) Relates to future : Forecasting relates to future events. ence of planning because planning also aims to be done in future. It is, therefore, needed in the planning process because it devises future course of action. 2) Depends upon past 4 nd present events ¢ Usually past ant to the business and also the experience of the person making forecasts form the basis of sting. Forecasting is made by analysing the past and present ata, It takes into account all the factors which affect Forecasting is the at deciding what i: and present events, which are relevi fore statistical d the functions of the enterpr! 3) Estimate of future : Business forecasting is of the future. It defines the probability of happening of an event in y or may not happen. The happening of future an estimate the future which ma} events can be precise only to a cer tain extent. 4) Tools and techniques : The analysis of various factors may generally require the mathematical and statistical tools and techniques. However, personal observations can 3 Iso help in this. process. The problems of forecasting can be solved by the help of qualitative and quantitative foree ‘asting techniques. gs Need or Significance of Fore Fore an important role in the management s, particularly in the planning process. In fact, every decision sting plays proce’ Planning, Forecasting and Decision-making @ 119 iaepends upon Torec: ig. 3:2.2 Techniques of Forecasting : There are many techniques of forecasting but no one technique is unique or universally accepted. In fact, most of the forecasting is done by combining various methods. In selecting a Particular technique, a manager should keep in view certain factors like the purpose of forecasting, reliability of historical data, degree of accuracy desirable, period of forecasting, cost and benefit of forecast and time available for making the analysis. A manager has to select any one and sometimes more than one technique, which he finds more suitable for application to his problem. The basic forecasting techniques may be classified into two major categories - (A) Qualitative forecasting techniques. (B) Quantitative forecasting techniques. (A) Qualitative Techniques Qualitative forecasting technique use such factors which cannot be presented in quantitative terms. These techniques may or may not use the past records. These are mainly used when past records of data are not available. The human judgement and rating schemes are used in such cases to turn the qualitative information into quantitative estimates. The main qualitative forecasting 122 @ Principles And Functions of Managementv. techniques are as fll a Jlogy method : In this method, forecast in {) Historical anal d ofricular phenomenon is made on the basis of some Faitions of the pas. It is based on the assumption anal gor yocasting result willbe the same in similar circumstances a re It is based on the stages of economic development. Every country passes through certain slages of economic development before the stage of take off. The effect of an event ata particular stage of economy of one country will be repeated in the similar ircumstances and the similar stage of economy in another country. Historical analogy method can also be used in respect of a product, when a new product is invented, the history of one or nore products may be investigated and forecast may be made on the basis of similarity of patter. This method is also more useful for indicating qualitative change in society because these ae almost similar in all countries atthe particular stage of development, 22) Executive opinion or opinion poll method : Executive opinion method is called as opi method and Dolphi technique. It involves s at jmates from a panel of experts’ who are knowledgeable aPovt te variables being forecasted. Such opinions are analysed and eductions are made to arive at forecast. If divergent e¥® 1 expressed by the experts, some of them may be called for discussion ‘and explanation as to why they are holding & particular opinion. ‘They may be asked to comment on other's opinion “This method is, panicularly valuable when past reconls of not available, This Trethod is fast, less expensive and does not ‘depend upon any igborated statistics and brings in specialised viewpoints. 3) Survey method : Under this method, sae are conducted to find out the course of future action For example : if ve wish to develop a forecast for future sales, we may. conduct a ‘Market survey’ with the help of questionnaires and interviews with the prospective customers and thus find out ‘whether they are Tikely to increase or reduce their consumption of ‘goods produced by us. Similarly surveys may be conducted to collect information Decision-making 123 Planning, Forecasting anda about the expenditure of a particular item by the government institution. This method is suitable for forecasting the demand of existing as well as a new product 4) Visionary forecast : As is clear from the term, this method uses personal insights, prophecies, judgement and when possible, facts about different scenarios of the future. The executives in the organi: ke forecast on_ init of executives of other related departments may also be ‘sought. is method is not free from subjective element and forecast figures may be inaccurate to that extent. However, this method does not involve much cost. It is sometimes applied for forecasts of long range and new product sales. (B) Quantitative Techniques Quantitative techniques are based on the analysis of past data and its trends. These are statistical techniques. The data on past performance of the product or product line are used and analysed to find out the trend or rate of change which may show | increasing or decreasing tendency. The following are the different quantitative techniques used for the purpose of forecasting : (i) Time series analysis : Time series analysis is a decomposition of the historical series into its various components, } iz. trend, seasonal variations, cyclical variations and random variations. By separating the variations of a particular phenomenon, the subject under study, say price, may be known over a period of time and projection may be made about the future. A trend may be known over a period of time and thus may also be used to forecast the future trend. This technique is used when data for a long time frame is ayailable and trends are clearly visible and stable. It is based on the assumption that past trend will continue in future. This assumption is valid fora short term projection. The statistical j methods used to project the trend are moving average method, trend projection method etc. 2) Index method : Ba atmospheric pressure in climatology. In the same way, index methods are used to measure the state of economy between two or_ ‘ometer is used to measure the 124 @ Principles And Functions of Management