FORECASTING IN QUANTITATIVE ANALYSIS
I am highly honoured to give a presentation on forecasting. You are all welcome. Every organisation’s success depends on how well it is able to forecast. We will look at the meaning of forecast, the steps, qualitative and quantitative forecasting and finally the benefits. The Meaning Of Forecasting
Forecasting is a process of predicting or estimating the future based on past and present data. Forecasting provides information about the potential future events and their consequences for the organisation. It may not reduce the complications and uncertainty of the future. However, it increases the confidence of the management to make important decisions. Forecasting is the basis of premising. Forecasting uses many statistical techniques. Therefore, it is also called as Statistical Analysis. Forecasting can be broadly considered as a method or a technique for estimating many future aspects of a business or other operation. Planning for the future is a critical aspect of managing any organization, and small business enterprises are no exception. Indeed, their typically modest capital resources make such planning particularly important. In fact, the long-term success of both small and large organizations is closely tied to how well the management of the organization is able to foresee its future and to develop appropriate strategies to deal with likely future scenarios. Intuition, good judgment, and an awareness of how well the industry and national economy is doing may give the manager of a business firm a sense of future market and economic trends. Nevertheless, it is not easy to convert a feeling about the future into a precise and useful number, such as next year's sales volume or the raw material cost per unit of output. Forecasting methods can help estimate many such future aspects of a business operation. "Perfect accuracy [in forecasting] is not obtainable," warned Richard Brealey and Stewart Myers in Principles of Corporate Finance. "If it were, the need for planning would be much less. Still the firm must do the best it can. Forecasting cannot be reduced to a mechanical exercise. Naive extrapolation or fitting trends to past data is of limited value. It is because the future is not likely to resemble the past that planning is needed. To supplement their judgement, forecasters rely on a variety of data sources and forecasting methods. For example, forecasts of the economic and industry environment may involve use of econometric models which take account of interactions between economic variables. In other cases the forecaster may employ statistical techniques for analyzing and projecting time series. Forecasts of demand will partly reflect these projections of the economic environment, but they may also be based on formal models that marketing specialists have developed for predicting buyer behavior or on recent consumer surveys to which the firm has access." Peculiarities, characteristics or features of forecasting are as follows:- 1. Forecasting is concerned with future events.
2. It shows the probability of happening of future events. 3. It analysis past and present data.
4. It uses statistical tools and techniques.
5. It uses personal observations.
Steps Used To Develop A Forecasting System
Procedure, stages or general steps involved in forecasting are given below:- 1. Analysing and understanding the problem: The manager must first identify the real problem for which the forecast is to be made. This will help the manager to fix the scope of forecasting. 2. Developing sound foundation: The management can develop a sound foundation, for the future after considering available information, experience, type of business, and the rate of development. 3. Collecting and analysing data: Data collection is time consuming. Only relevant data must be kept. Many statistical tools can be used to analyse the data. 4. Estimating future events: The future events...
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