Essentials of Business Forecasting
Business is about meeting demand with supply. For each unit of demand generated equal amount of supply must be there to reach equilibrium in an economy. But how efficiently a business would meet demand-supply equilibrium in the market depends upon its ability to predict future business cycle.
Business forecasting is important for sustainability
Forecasting is a process to determine future business trends and accordingly, preparing for future. It is a wholesome process that includes anticipating future for the business, prospect of a product in product line, predicting growth of the industry on a whole, and more.
Forecasting however is not about taking a wild guess. It is rather hypothecating based on past data available. Inputs on historical trends of the market, sales cycles, economic statistics as well as external factors prepare the ground work for forecasting.
Data collaboration and information dissemination are two most important components of forecasting methods. Forecasting based on information helps addressing the following issues.
- Forming understanding of business cycle
- Guessing future demand for a product
- Establishing actual cost of sales
- Better management of inventory with clear indication for inventory requirements
- Identifying time for new product development and launching
- Staff management and workforce maintenance
- Human resource management and indication for new recruitment
- Additional requirement of fund
- Determining tangible profit
- Scheduling borrowing and repayment plan
Business forecasting methods
Forecasting is essential for making business plans. It is crucial for the management to plan ahead and fine tuning operational method to improve sustainability. Business forecasting impacts business process management by and large. It helps with understanding of the market which in turn impacts product line up and new product development by presenting a wholesome picture before the management.
There are two prominent business forecasting methods – qualitative and quantitative. It may take some time to improving forecast accuracy but the process needs to be adopted and implemented from the beginning.
The quantitative part involves computation and statistical analysis of data gathered from different sources applying methods of time series and regression.
Qualitative analysis, on the other hand, involves application of judgment, understanding, analysis, and past experiences. It depends more on human skills than mathematical computation.
Forecasting software methodise forecasting model by ensuring collaboration of data and dissemination of information across platforms. Tools that help with improving accuracy of forecast method employ statistical analysis of data and automate most part of the forecasting process.
Correlation of supply chain management and business forecasting
Supply chain involves everything from conceiving product idea to lateral shift of goods to end users. Forecasting is a critical part of supply chain management, which is the backbone of a successful management. By imparting important information on inventory management it allows business to better manage supply and demand parity in the market.
Business forecasting offers insight on anticipating prospect of a product in the line-up, stock to be maintained, requirements of raw material or additional workforce – all essential for efficient management of supply chain.
Forecasting software is designed to help with improving forecast accuracy by employing business forecasting methods in identifying any pattern in demand-supply scenario both in near future and long term.
