Forecasting Methodology

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Forecasting Methodology
Forecasting is an integral part in planning the financial future of any business and allows the company to consider probabilities of current and future trends using existing data and facts. Forecasts are vital to every business organization and for every significant management decision. Forecasting, according to Armstrong (2001), is the basis of corporate long-run planning. Many times, this unique approach is used not only to provide a baseline, but also to offer a prediction into the corporation's future. In the functional areas of finance and accounting, forecasts provide the basis for budgetary planning and cost control. Marketing relies on sales forecasting to plan new products, compensate sales personnel, and make other key decisions. Production and operations personnel use forecasts to make periodic decisions involving process selection, capacity planning, and facility layout, as well as for continual decisions about production planning, scheduling, and inventory. Planning problems, whether dealing with services or merchandise, can cause any manager headaches easily solved by forecasting. It is important that any manager realizes that the past is a key to the future. Although no long-term plan is perfect, using the correct forecasting tool, along with continual evaluation, allows the manager to review and update corporate financial plans. Most people view the world as consisting of a large number of alternatives. Futures research evolved as a way of examining the alternative futures and identifying the most probable. Forecasting is designed to help decision making and planning in the present. Forecasts empower people because their use implies that we can modify variables now to alter (or be prepared for) the future. There is no perfect forecast, management should try to find and use the best forecasting method available. According to Chase, Jacobs and Aquilano (2006), Forecasting can be classified into four basic types: qualitative,...
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