What Does Forecasting Mean?

Forecasting is simply the act of using past events and occurrences to predict the future. It is just a technique of predicting what will happen in the future by taking into consideration past and present developments.

Essentially, it is a decision-making tool that examines previous data and real-life trends to assist businesses in coping with the impact of future uncertainty. It’s a planning tool that allows companies to decide on steps to take in the future and develop budgets that, presumably, will cover any potential risks.

Forecasts are not long term, they are subject to change at any time. They can be reviewed monthly or every quarter depending on the new occurrences that take place. Forecasts are controlled by the occurrence of events.

There are two (2) major methods of forecasting. They are:

1. Qualitative Method or Judgmental Method.

As the name implies, these kinds of forecasts are often based on the personal judgments, knowledge or intuition of experts. Ideally, such predictions that can make or break a business should have a more analytical structure that is based on data/information. They are 3 major techniques that this model makes use of, they are:

Delphi Method: This necessitates the use of an expert panel. Assemble an objective group of market leaders to give their opinions and undertake a forecast for a specific time. The key is to have them perform it individually first, then as a group. What you’ll frequently discover is that the average of an expert’s opinions is never far from the truth.

Market Survey: Ask the cooperative partners and customers about their sales projections. This offers you a fair estimate of how much market growth in your business you can expect.

Ask your sales team: It’s preferable if you sell high-ticket things to a small number of people. They keep in touch with your clients regularly and can provide you with account names, purchase amounts, frequency of purchases, and budget size

2. Quantitative Method 

This is the method that makes predictions after carefully studying past trends and occurrences. It is a more systematic and mathematical approach to proper decision-making.

 3 techniques are used in the quantitative method. They are: 

• Trend analysis: This means that by looking at historical sales data, you can spot specific patterns that can be utilized to forecast future fluctuations. Seasonality, random component analysis, or economic demand could all contribute to this.
• Exponential Smoothing: It takes an exponentially weighted average of past sales to forecast future revenue, and is perhaps the most accurate and extensively used method for accurate sales forecasting.
• Simple Moving Average: This method necessitates the sales manager estimating sales data from a particular predetermined period, anywhere between 2, 3, or 6 months.

The idea of forecasting seems like a very easy one, to the ordinary man they are mere predictions or lucky guesses, but in reality, they are more strategic and analytical. To become a professional business forecaster, you have to undergo series of training. But we will put you through the basic steps of forecasting so that you can apply some of the steps to help boost your business and income. It would help you plan for the future of your business, satisfy your customers and possibly get new customers.

So let us give a simple step-by-step guide on how to achieve proper product forecasting that would be profitable to your business.