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Steps of Forecasting

1. The process of forecasting involves 4 main steps: developing the basis, estimating future business operations, regulating forecasts, and reviewing the forecasting process. 2. Data collection is important for business forecasting and involves planning questions around why, what, when, where, who, and how data will be collected. Data can come from primary or secondary sources. 3. While business forecasting has limitations like potential errors and influence of perspective, it is still useful for management in making decisions when statistical models are used and forecasts are regularly reviewed and revised.

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Hashar Rashid
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945 views

Steps of Forecasting

1. The process of forecasting involves 4 main steps: developing the basis, estimating future business operations, regulating forecasts, and reviewing the forecasting process. 2. Data collection is important for business forecasting and involves planning questions around why, what, when, where, who, and how data will be collected. Data can come from primary or secondary sources. 3. While business forecasting has limitations like potential errors and influence of perspective, it is still useful for management in making decisions when statistical models are used and forecasts are regularly reviewed and revised.

Uploaded by

Hashar Rashid
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Steps of Forecasting:

The process of forecasting consists of the following steps,


also described as elements of forecasting:

1. Developing the Basis:


The first step involved in forecasting is developing the basis of systematic
investigation of economic situation, position of industry and products. The future
estimates of sales and general business operations have to be based on the
results of such investigation. The general economic forecast marks as the primary
step in the forecasting process.

2. Estimating Future Business Operations:


The second step involves the estimation of conditions and course of future events
within the industry. On the basis of information/data collected through
investigation, future business operations are estimated. The quantitative
estimates for future scale of operations are made on the basis of certain
assumptions.

3. Regulating Forecasts:
The forecasts are compared with actual results so as to determine any deviations.
The reasons for his variations are ascertained so that corrective action is taken in
future.

4. Reviewing the Forecasting Process:


Once the deviations in forecasts and actual performance are found then
improvements can be made in the process of forecasting. The refining of
forecasting process will improve forecasts in future.

Sources of Data Used In Business Forecasting:


Collection of data is a first step in any statistical investigation. It is the basis for
any analysis and interpretations. Before collection of data, many questions shall
occupy the mind of the manager. The manager must be able to answer these
questions before task of collection is started.

These questions are:


Why to collect data?

What kind of data to be collected?

When it is to be collected?

Where from it should be collected?

Who will collect it?

How it shall be collected?

The answer to these questions is nothing but planning the collection of data.
Planning for data collection refers to thinking or preparing before doing the actual
task of data collection. The purpose or object of data collection, the scope of the
data, the unit of data collection, the technique and sources of data are the
important consideration in planning the data collection.

Data may be collected from primary or secondary sources depending upon the
time, resources, and purpose of the investigation.

(i) Primary Sources:


It is a first-hand data collected personally by the investigator. It is costly and time
consuming. Primary data is collected if secondary data is not available. It is
collected by personal interviews, questionnaires or observations.

(ii) Secondary Sources:


These sources of data refer to already published data or data collected by other
agencies. It is a secondhand data. Here task is more of a compilation of data.

The sources of secondary data are:


(a) Official reports of the government.

(b) Publications of Reserve Bank of India, Financial institutions etc.

(c) Annual reports of companies.

(d) Journals, Newspapers, Magazines etc.


Lot of care and caution is necessary before using the secondary data. Such data is
cheaper, quicker and easily available.

Limitations of Business Forecasting:


Inspite of many advantages, some people regard business forecasting “as an
unnecessary mental gymnastics and reject it as a sheer waste of time, money and
energy.”

The reason for the same lies in the fact that despite all precautions, an element of
error is bound to creep in the forecasts and we cannot eliminate guesswork in
forecasts. It is also felt that forecasting is influenced by the pessimistic or
optimistic attitude of the forecaster.

It may not be possible to make forecasts with a pin-point accuracy. But, it still
cannot undermine the importance of business forecasting. The management
should first make use of statistical and econometric models in making forecasts
and then apply collective experience, skill and objective judgement in evaluating
the forecasts.

Further, the forecasts should be constantly monitored and revised with the
changed circumstances.

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