Forecasting and Planning:
Forecasting is the process of
estimating the relevant future events based on analysis of their past and
present behavior. According to Neter and Wasserman, “Business forecasting refers to
the statistical analysis of the past and current movement in the given time
series so as to obtain clues about the future pattern of those movements”.
Forecasting is one of the major
ingredients of planning process since planning involves determination of the
future course of action with the help of forecast made. But both are different.
Planning involves many sub-processes and elements in order to arrive at
decisions in terms of what is to be done, how and when. Thus, planning is more
comprehensive and the commitment of actions is the basic ingredient of it. On
the other hand, forecasting processes are used to project what will happen in
future that may help in planning the future course of action. However,
forecasting does not involve any commitment of actions.
What is the need for Forecasting?
Forecasting generates the
planning process. It provides the knowledge of the planning premises within
which managers can analyze their strengths and weaknesses and can take
appropriate actions in advance. For example- if there is a change in consumers
preferences for a substitute product, managers can take appropriate action to
combat this problem by choosing a suitable product mix.
Thus, forecasting helps in
effective planning by providing a scientific and reliable basis for
anticipating future operations like sales, production inventory, supply of
capital, etc.
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