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(ii) The conditions in the future will not change materially. Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. Before publishing your articles on this site, please read the following pages: 1. The methods are: 1. Based on the past events, this method uses the projection of trends. This method is just reverse of the direct or bottom-up method. This article throws light upon the top six methods of business forecasting. General Business Forecast: No business is completely independent and hence general business forecast is … However, the main drawback of this method is that it relies more on individual judgement and initiative appraisal than on actual record. In this connection  O’ Donnell point out that “It is the sales forecast that must set the stage for internal planning, business expenses, capital outlays. This type of forecasting decides the fate of the organisation as the sales determine the success of the company. In addition to the critical analysis of the past events to draw future inferences, the subjective evaluation and conclusions for deducing discretion, experience and intuition of the forecaster. Management, Financial Management, Business Forecasting, Methods. Therefore, sales forecasting should be undertaken with due care and precaution so as to see that whatever planning department has decided is carried out to promote the sales. The econometric models are not very popular because it is not possible for every business to develop his own model of the economy. Table 8-1 shows these two categories and their characteristics. The important advantages of this method include: (i) The past information or records can be easily obtained; and. To sum up, business forecasting is essential for people who want to make the most out of their organization. Prohibited Content 3. With this object in view, forecasting of capital requirements has become a necessity and is taken as a primary step in the organisation. These models show the way of inter-relationships amongst the various aspects of the economy. However, the main disadvantage of this method is the joint responsibility which may ultimately result into no-body’s responsibility. There are many quantitative methods:- for example Time Series Forecasting, Regression Forecasting, etc. Disclaimer 9. The experts that receive this task use various tools, such as a business barometer, mathematical projections, extrapolation, econometric models or regression. Policies of all kinds are made the purpose ordinarily of maximising profits obtainable from expected sales, whether this forecast is for a period of months or for a period of years; it is the key to future business plans”. Revenue does not necessarily mean cash received., expenses, and capital costs for a business. Before uploading and sharing your knowledge on this site, please read the following pages: 1. The reports on general business and trade conditions are published by the Chamber of Commerce, industry and some trade associations. Techniques of Business Forecasting – Used in Business Enterprises . (b) Extrapolation or Mathematical Projection: Extrapolation is the process of estimating a value for some future period, based on some assumptions. The term ‘business index’ refers to a series relating to business conditions. This type starts from the assumption that no business is entirely independent. The business barometers are very useful in business forecasting, but sometimes these barometers give misleading conclusions due to inaccurate construction of index numbers or changed conditions. Image courtesy of Julian Gooden. Content Filtrations 6. Here, the whole forecast is made first. As many factors may prevent history to repeat it, it is necessary to modify the trend revealed by business barometers in the light of specific conditions influencing the judgement. This article throws light upon the top six methods of business forecasting.

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The members of the committee may also not take active interest as they know that their judgement may not be finally accepted.

These can be classified into four broad categories: qualitative, time-series, causal models, and technological forecasting. Then, they move on to forecasts for various activities undertaken by the business.

Disclaimer 8. It analyzes a historical sequence of events and it takes it as a base for comprehending the current situation. Bottom-up Method 2. We presented six of them above, together with some useful advice on how to go about this important step. Historical Method 4. Moreover, the members that are brought together may not be that interested in the project since their opinion might be rejected. A committee for business forecasting is formulated to take the joint view of various members. Privacy Policy 9. The regression equation, y=a+bx, can be used as an instrument to predict the value of y for a given value of x. The various index numbers relating to different activities of business may be combined into a general or composite index of business activity.’. There are two main advantages of this method: The problem here is that future trends might deviate from the path shown by past events. There are various advantages to choosing this method: The main downside is the fact that the joint responsibility will lead to no single responsible person for the action. Copyright 10. Terms of Service 7. The business forecasting, in this case, takes place on scientific lines.

Here you have a clip that explains in detail different types of business forecasting and gives concrete examples: When you say ‘business forecasting’, many people already think about planning for the worst. The Elements of Forecasting . are plotted on a graph paper to obtain the curve showing trend of long-period and seasonal movements. Image Guidelines 4. An attempt is made to evolve consensus for predicting future events on the basis of their views.

Under this method, forecasting is done on scientific lines by making use of various statistical tools, such as, business index or barometer, extrapolation or mathematical projections, regression and econometric models. The Reserve Bank of India also publishes various index numbers and indicators of general economic conditions. Various types of Business Forecasting are: 1.General Forecast, 2.Sales Forecast, 3.Capital Forecast! Let’s have a look at three main types: general, sales, and capital.

These business barometers guide the businessmen in taking decisions on many problems like expansion of production activity, diversification, undertaking of a new project, exploring new markets, launching as sales campaign rising of funds through issue of shares or debentures etc. Being such a vast topic, there are various types of business forecasting, divided according to different criteria. Image Guidelines 5. Thus accurate forecasting helps the organisation to employ its capital to the fullest extent and can get the optimum returns on its investment. The downside here is that it relies a lot on initiative appraisal and individual judgment rather than on cold, hard facts. Learn how your comment data is processed. Required fields are marked *. A large number of forecasting techniques are used in business enterprises. This may degenerate the entire forecasting process into a mere guess work.

It is from this point of view only that sales forecasting has been deemed to be as a guiding factor in planning and important aspect of the organisational set up. As such, the accuracy of the final forecast depends on each department. The main advantages of this method include: (i) It encourages co-operation and co-ordination and also utilises the services of various experts; (ii) There is no need of detailed statistical analysis, and.