Forecasting in the layman language means to ‘Predict’ and the most common example is weather forecasting. But for an Entrepreneur, the real interest should lie in Business Forecasting. These predictions generally revolve around the development of your business regarding the “Profit-loss predictions”. It is considered to be one of the most important aspects of the corporate world.
A good forecasting can help entrepreneurs to save their company from any kind of losses or enjoy the profits to the full extent. It is not only about company’s development but also about the market’s development can benefit the owner. The only thing that should be kept in mind while doing all this is to perform an effective forecast. One that is carried carefully by keeping all the important factors in mind.
Types of Forecasting
- Judgment Forecasting: It is purely based on gut feeling. Something that is based on what you expect of your strategies. Sometimes, experience also helps you to make this kind of predictions. This type is not very high on accuracy. It can be right as well as wrong. It should be completely unbiased in order to create an accurate forecast. You need to be a strict critic.
- Quantitative Forecasting: It is based on past and present numbers. Something that is visible and can be shown on paper with the support of data. It can be inaccurate in terms of predicting the outcome of strategies that are not yet implemented. Customers can take the new strategy in any way, good as well as bad. Still, it is way more accurate than the judgment method
By combining both types can give highly precise results. When market forecasting is done, judgment forecasting method is more beneficial. Both types of forecasting methods have their own applications, advantages, and disadvantages.
Methods of Judgment Forecasting
Market research (customer’s opinion)
The opinion of customers that are considered to be market research can be done on the basis of polling at local events or giving out sample products. Even brainwashing sessions are included in this which is done just to improve the reach of your products.
Scenario writing method
It deals with making assumptions. Every type of assumption is made and case scenarios are written. Solutions to each case scenario are worked upon beforehand. Different scenarios also let the Entrepreneur choose the best possible scenario and make a forecast on the basis of it.
Delphi method (expert’s opinion)
It can be implemented by asking questions to experts or asking a panel of experienced people to judge your product or other factors.
Methods of Quantitative forecasting
It is done solely on the basis of data. This includes methods like time series methods and projections, econometric modeling and indicator’s approach.
It is a method in which one indicator is followed throughout. This indicator causes and leads the change in sales even when other factors remain same. By analyzing similar kind of indicators a forecast can be created.
The Econometric modeling
It is a ‘more’ mathematical version of indicator approach. It is based on past records and data of the indicators. Change which came with the use of different indicators or their combinations is noted and studied. Hence, studying a relationship on a mathematical level which helps to create a more accurate forecast.
It is a very widely used method. It is based on past data and works on priority levels. Recent data gets more priority. A study is done on all the data according to the priority given to them.
Again, even though forecasting is a valuable method to improve the workings of a company, it’s not hundred percent accurate. A carefully written forecast is only beneficial. It should be completely unbiased. It should contain honest data only then will it be helpful.