Forecasting

Forecasting can be thought of as making predictions based on historical and current data to anticipate future needs. Quantitative forecasting is accomplished through objective numerical data and statistical analysis. In contrast, qualitative forecasting makes predictions using subjective knowledge guided by expertise or past experience.

This page gives a simple overview of both quantitative and qualitative methods. Study the forecasting diagram as it displays a visual representation of forecasting. When is it appropriate to use a qualitative forecast? A quantitative forecast?

Forecasting

Forecasting is the process of making statements about expected future events, based upon evidence, research, and experience.


LEARNING OBJECTIVE

  • Demonstrate the value and role of effective forecasting in the development of successful strategies.


KEY POINTS

  • An important aspect of forecasting is the relationship it holds with planning. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like.
  • As part of the implementation of policies and strategies, the forecasting method develops a reliable picture of the company's expected future environment.
  • Quantitative forecasting generally employs statistical confidence intervals and historical data to project potential future trends that are based upon the criteria being analyzed.
  • Qualitative approaches are the opposite: they rely on logical premises, expertise, or past experience to generate estimates of future circumstances.
  • Forecasting enables a manager to look at the current environment and identify likely scenarios, each of which may require a deviation from the overall strategy.


TERMS

  • scenario

    An outline or model of an expected or supposed sequence of events.

  • forecast

    An estimation of a future condition.

  • planning

    The act of formulating a course of action or of drawing up plans.

Forecasting is the process of making statements about expected future events based upon evidence, research, and experience. For example, a business might estimate the exchange rate between the U.S. and the EU one year from now to determine the real financial cost of a project.

An important and often overlooked aspect of forecasting is the relationship it holds with planning. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like. While both are managerial functions, forecasting is rife with external uncertainty while planning is hindered by internal uncertainty.

Source: Boundless, http://oer2go.org/mods/en-boundless/www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/internal-analysis-inputs-to-strategy-88/forecasting-428-883/index.html
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