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What Is Business Forecasting?
What exactly is business forecasting? To help answer this question, consider this. Whether you realize it or not, virtually every business decision and process is based on a forecast. Anything you plan is generally based on an assumption of something happening in the future which, by definition, is a forecast. Not all forecasts are derived from sophisticated methods, but an educated guess about the future is more valuable for the purposes of planning than no forecast at all.
It does not matter which industry you are in, whether your company manufactures products or offers services, or whether your company is small or large, you must have forecasts to plan effectively. Of course, the more accurate the forecasts, the better the plan. It stands to reason that if we know what happened in the past and why, or have insight into what may occur next, we can then predict what is likely to happen in the future. With this information, we can potentially alter the future to the company’s advantage.
Business Forecasting Drives Better Decision Making
Business Forecasting is the process of using analytics, data, insights, and experience to make predictions and respond to various business needs. The insight gained by Business Forecasting enables companies to automate and optimize their business processes. A Forecaster’s goal is to go beyond knowing what has happened and provide the best assessment of what will happen in the future to drive better decision making.
Many people think of a Business Forecast as how many of something we will sell next week. That is part of it, but Business Forecasting can encompass anything that identifies the likelihood of a future outcome, provides comparative information using analytics, or drives data-driven business decisions.
What Is Business Forecasting Used For?
Business Forecasting can be used for:
- Strategic planning and decision-making (long-term planning)
- Finance and accounting (budgets and cost controls)
- Marketing (consumer behavior, life cycle management, pricing)
- Operations and supply chain (resource planning, production, logistics, inventory)
Business Forecasting Techniques
At the heart of business process decision making is the forecast, which involves techniques including:
- Qualitative Forecasting: Refers to the use of opinion or educated guesses in developing forecasts.
- Quantitative Forecasting: Used to develop a future forecast using past data and, often, statistical or mathematical models.
These techniques, along with analyzing data and the use of statistical algorithms, can also be the foundation and input into a Demand Plan. For some companies, the forecast may be considered the Baseline Demand Forecast and is more statistically driven, and is a critical part of Demand Planning.