Types of Forecasts
Corporate planning groups use market forecasts to guide
research and development activities and to plan new facilities.
Finance and accounting groups use forecasts to estimate future
profits and capital requirements. Marketing groups use forecasts
to plan promotions and sales strategies. Operations groups use
forecasts to plan plant capacity, inventory levels, production
schedules, resource allocation, etc. And, investors use forecasts
to identify under-priced securities. Clearly, forecasting is an
essential part of business planning for most companies.
There is a wide variety of forecasting techniques that you can
use including: qualitative techniques, such as combining
department estimates; and, causal techniques, such as determining
how advertising impacts sales and then deriving sales from
planned advertising. This chapter deals exclusively with a third
technique, time-series forecasting.
Time-series forecasting relies on the assumption that you can
extract a trend or pattern from historical data, and extrapolate
the trend into the future. For example, use historical sales to
predict future sales. This is a very useful technique for
short-range forecasts because it is easy to apply. Also, in the
absence of any substantial change in business practices,
time-series forecasts can be quite accurate.