A Forecasting Model
Forecasting is more than a technique-it is a system. Most successful organizations, view it as a system.
Forecasting model begins with information inputs. Forecasts are possible, only when a history of past data exists .An established TV manufacturer, for example can use past data to forecast the number of picture screens required for next weekâ€™s TV assembly schedule. Past data is available for products, which are already being produced .Supposing; the TV manufacturer decides to offer a totally new model. Then the forecasting needs to be based on the managerâ€™s skill, experience, judgement and established techniques precisely because no past data is available.
Data is used to forecast sales in terms of quantity and value of sales. Sales forecast is translated into demand for factor capacities, funds, facilities and others (longâ€“term forecasting); workforce materials, department, requirements inventories and others (intermediate-range forecasting) and short-term forecasting involving forecasting for specific labor skill required, machine hours ,cash and inventories.
When the long-range, intermediate-range and short-range forecasts are worked out or predicted, the consequence is production of goods and services.
Forecasting methods can be broadly divided into two main categories:
â€¢Qualitative or judgemental methods
In some situations, a combination of methods may be used. In quantitative methods, also called time series methods, past methods, past data is used in making a forecast for the future .This process is like driving a car along with looking through the rear mirror. However, where forecast is to be made for short-periods, quantitative methods are more appropriate.
Qualitative or Judgemental methods rely on an expertâ€™s opinion in making a prediction for the future. These methods are useful for intermediate to long-range forecasting tasks. The use of judgement in forecasting may sound unscientific and adhoc .But, where new products are sought to be introduced, there are few alternatives other than using the informed opinion of knowledgeable people .However, to obtain better results, judgemental methods are used in conjunction with other categories of methods.
Detailed description of the forecasting methods follows
These methods seek to identify patterns in the past data. In order to systematically analyze data, managers use a time series analysis .In this analysts plot demand data on a time scale, study the plots and look for consistent shapes or patterns.
Demand pattern becomes continuous when; it is constant and does not consistently increase or decrease the sales of a product, which in the nature stage of its cycle may show a horizontal demand pattern.
Linear trend emerges when demand increases or decreases from one period to the next .The sales of products in the growth stage of the product life cycle tend to show an upward trend, where as those in decline; tend to show a downward trend.
The cyclical pattern pertains to the influence of seasonal factors that have an impact on demand, either positively or negatively. For example, the demand for woolen wear will be high in winter and low during summer.