Forecasting:

A forecast is an estimate of an event which shall happen in future. Most managerial decisions, at all levels of an organization, are based explicitly or implicitly on some form of a forecast concerning the future. The need for a forecast would not be felt if there had been stable environment with little or a predictable rate of change. With the environment becoming more complex and dynamic, although, a forecast of future conditions becomes almost indispensable. The social, economic, political, & technological aspects of our environment are nowadays changing at such a pace and in such diverse ways that forecasting even for the near future has become a challenge. Today, forecasting has become a vital function that pervades every planning effort in almost all spheres of human activity, especially that of producing to satisfy an extremely large variety of needs for products and services.

Demand for a product may be considered to be a function of both controllable variables (e.g. advertising effort) and uncontrollable variables (for example. raw material cost). Demand patterns that are not significantly affected by uncontrollable variables are relatively easy to forecast. While the patterns have uncontrollable elements, which can be identified and isolated, forecasting is facilitated. In the similar way, if demand has identifiable trends or cyclic or seasonal factors, it is easier to make a better forecast.

Objectives

After studying this unit, you should be able to

• understand about forecasting,
• learn different types of demand patterns,
• understand various types of forecasting methods.