Understanding Forecasting in Business Essay Example

The choice of an appropriate forecasting technique is one of importance aspects in organization. This essay reviews and summarizes how to choose the right forecasting technique using the provided article. The write up shall review about understanding the basic and general principals of forecasting. Besides, the paper seeks to review the techniques of forecasting and make conclusions on quantitative analysis.

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Forecasting is a technique that makes use of historical data as a mechanism of making informed decisions expected in determining the direction of future trends. Before making any decisions, business executive, and company managers ought to consider forecasting (Knotek & Zaman, 2019). Executives and managers have to consider changes in matters of demand, economic swings, and sales forecasting. Besides, managers need to consider other factors like price-cutting actions of the competition.

Forecasting is a necessity in any business, and both the manager and the forecaster must be actively involved and cooperate for success (Lackes, Siepermann, & Vetter, 2019). There are different forecasting techniques, and each technique must suit a particular situation. The selection of a method will depend on various factors including the context of the forecast and the availability of historical data. Also, the cost of the forecast to the company must be considered too (Knotek & Zaman, 2019).

The forecaster should choose a technique that makes use of the available data putting into consideration the purpose of the forecast. Moreover, the forecaster, in collaboration with the manager must choose a technique that suits the vital elements of the forecast. All these considerations will help determine the future trends.

There are different types of forecasting techniques used in business, but this article has focused on three major types. Firstly, there is a qualitative technique that mainly uses human judgment. This technique is often used where data are scarce, most especially in instances where there is the introduction of a product to the markets for the first time (Chambers, Mullick, & Smith, 2019). Secondly, there is time series analysis and projection; which is a set of chronologically raw data, by month, for several years. This technique use is commonly when years of data for a particular product is available, with its trend being stable over time. Lastly, there is the causal technique, which is the most sophisticated type of them all. This technique use is when historical data is available, and there has been sufficient analysis of all the factors necessary in forecasting.

Before any business or company can make any forecasts for the future, both the manager and the forecaster must collaborate. The manager must understand the essential attributes and shortcomings of each technique (Chambers et al., 2019). The forecaster, on the other hand, must combine the methods with the knowledge and experience of the manager.

In terms of quantitative analysis, forecasting is necessary for making marketing plans for any business (RRtheli, 2015). Business managers must be able to balance their approach to marketing by making use of the appropriate forecasting technique that is suitable for their businesses. With the available and accurate quantitative data, business managers can avoid uncertainty and anticipate a change in the markets.

Conclusion

In conclusion, business managers and forecasters should make use of available and accurate data on the previous product's performance. This kind of information and analysis will help in getting a clear gauge on what is the current tendency of the product. Understanding the current trend will help in knowing how the scenario is increasing or decreasing.

References

Chambers, J., Mullick, S., & Smith, D. (2019). How to Choose the Right Forecasting Technique. Retrieved from https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique

Knotek, E., & Zaman, S. (2019). Financial nowcasts and their usefulness in macroeconomic forecasting. International Journal Of Forecasting. doi: 10.1016/j.ijforecast.2018.10.012

Lackes, R., Siepermann, M., & Vetter, G. (2019). What drives decision makers to follow or ignore forecasting tools - A game based analysis. Journal Of Business Research. doi: 10.1016/j.jbusres.2019.02.036

RRtheli, T. (2015). Should Business Rely on Business Cycle Forecasting?. SSRN Electronic Journal. doi: 10.2139/ssrn.2671167