Business Forecasting Notes for MBA Students.

1. Business Forecasting
 Everything you need to know about business forecasting. Forecasting is
a systematic estimation of future events with the help of in-depth
analysis of past and present events.
 Forecasting provides a basis for planning. Forecasting includes both
assessing the future and making provision for it. As a result, planning
cannot be done without forecasting.
 Thus, forecasting is the projection of future events (or conditions) in the
environment in which plans operate. Forecasting aims at
understanding various uncertainties and complexities associated with
the environment.
 Forecasting is an essential element of planning. It means estimating
future on a systematic basis. Almost every business executive makes
forecasts of one thing or the other.
 The need to foresee future on a systematic basis was very well
emphasized by Henry Fayol. He was of the opinion that the entire
planning in business is made up of a series of separate plans, called
forecasts.
Business Forecasting – Meaning
A ‘forecast’ is a prediction of what is going to happen as a result of a given
set of circumstances. The dictionary meaning of ‘forecast’ is ‘prediction,
provision against future, calculation of probable events, foresight, provision’.
In business sense it is defined as ‘the calculation of probable events’. When
estimates of future conditions are made on a systematic basis the process is
referred to as forecasting and the figure or statement obtained is known as a
‘forecast’.
The growing competition, rapidity of change in circumstances and the
trend towards automation demand that decisions in business are not to be
based purely on guess work rather on careful analysis of data concerning the
future course of events. Forecasting aims at reducing the areas of uncertainty

2. that surround management decision making with respect to costs, profit, sales,
production, pricing, capital investment and so forth.
Companies must plan their future with business forecasts otherwise they
may become things of past. So far companies operated within a license and
permit regime and a sheltered market forecasting was not considered very
useful and liberalization is changing the rules of the game.
With liberalization, the Government has less of a role to play. Companies
previously relied on hunches, political contacts and sketchy plans, but now
have to face stiff competition in the domestic and global markets, and business
forecasting is fast gaining importance.
Business Forecasting – Definitions Provided by L.A. Allen,
Mc Farland, Neter and Wasserman and Webster’s New
Collegiate Dictionary
Forecasting is a systematic estimation of future events with the help of in-
depth analysis of past and present events. Forecasting provides a basis for
planning. Forecasting includes both assessing the future and making provision
for it. As a result, planning cannot be done without forecasting. Thus,
forecasting is the projection of future events (or conditions) in the
environment in which plans operate. Forecasting aims at understanding
various uncertainties and complexities associated with the environment.
Forecasting provides key information and pertinent facts relating to the
future. It is essentially a technique of anticipation. The forecasting technique
involves the use of sophisticated statistical analysis for the future. Forecasting
provides an intellectual basis for formulating various plans. Techniques of
forecasting are used for generating relevant and reliable information to
formulate planning premises. Forecasting is a guessing of future events after
considering all the factors that affect organizational functions.
 ‘Forecasting is a systematic attempt to probe the future by inference from
known facts.’ [L. A. Allen]
 ‘Forecasts are predictions (or estimates) of any change in economic
phenomena which may affect business plans.’ [Mc Farland]

3.  ‘Forecasting refers to the statistical analysis of the past and current
movements so as to obtain clues about the future pattern of movement.’
[Neter and Wasserman]
 Forecasting is a prediction and its purpose is to calculate some future
event or condition.’ [Webster’s New Collegiate Dictionary]
 Thus, forecasting is a systematic effort to peep into the future.
Forecasting cannot be made without proper knowledge of past and
present circumstances. Forecasting increases accuracy and exactness in
decision-making.
Business Forecasting – Need and Significance
Forecasting is an essential element of planning. It means estimating
future on a systematic basis. Almost every business executive makes forecasts
of one thing or the other. The need to foresee future on a systematic basis was
very well emphasized by Henry Fayol. He was of the opinion that the entire
planning in business is made up of a series of separate plans, called forecasts.
L. Urwick also visualised the pervasiveness of forecasting in every aspect of
business. According to him, “The man who starts a business is making an
assessment of a future demand for its products. The man who engages staff
usually has an eye to future organizational requirements.” Thus, forecasting is
a necessary activity for any business right from its birth.
The importance of forecasting is apparent from the role it plays in
planning. Forecasting is an important part of effective planning. A manager
who is planning is also supposed to make some forecasts about the future. A
systematic attempt to probe the future by inference from known facts helps
integrate all management planning so that unified overall plans can be
developed into which division and departmental plans can be meshed.
Forecasting helps in taking sound policy decisions which are necessary for the
achievement of organisational objectives. By focusing attention on the future,
forecasting assists in bringing unity of purpose in planning.

4. Forecasting has assumed great importance in the modern business world
which is characterised by growing competition, rapidity of change in
environment, fast technological changes and increased government control.
It offers the following advantages:
(i) It helps in effective planning by providing a scientific and reliable basis for
anticipating future operations such as sales, production, inventory, supply of
capital and so on.
(ii) Forecasting aims at reducing the area of uncertainty that surrounds
management decision-making with respect to costs, production, sales, profits,
pricing, etc. If the future were known with certainty, there would have been no
need of forecasting. But the future is highly uncertain and so there is a great
need to have an organised system of forecasting in the organisation.
(iii) Making and reviewing of forecasts on a continuous basis will compel the
managers to think ahead and to search for the best possible decisions with a
dynamic approach.
(iv) Forecasting is necessary for efficient managerial control as it can disclose
the areas where control is lacking. Forecast of sales is a must in order to
control the costs of production and the productivity of personnel. Forecasting
will help in anticipating the areas where there is a great need to be attentive to
control the costs.

5. Business Forecasting – Features: Concerned with Future
Events, Necessary for Planning Process, Consideration of
Relevant Facts, Inference from known Facts and a Few
Others
The following features of forecasting can be identified on the basis
of the above definitions:
i. Concerned with future events – Forecasting is concerned with future
events. It is a systematic effort to peep into the future. It is essentially a
technique of anticipation.
ii. Necessary for planning process – Forecasting is necessary for the
planning process. It is the basis for planning. Decisions cannot be taken
without the help of forecasting. Therefore, it is an integral part of the planning
process.
iii. Consideration of relevant facts – Forecasting considers all factors
which affect organizational functions. It is a technique to find out the
economic, social, and financial factors affecting the business.
iv. Inference from known facts – Forecasting is a systematic attempt to
probe the future by inference from known facts. It is an analysis of past and
present movements so as to arrive at the conclusion about the future pattern.
v. Art of reading the future – Forecasting is not an exact science. It
involves looking ahead and projecting the future events. It requires the use of
scientific, mathematical, and statistical techniques for reading the future
course of events.
vi. Elements of guess-work – Forecasting involves elements of guess-work.
Personal observations help in guessing future events to a great extent.
Estimates for the future are based on the analysis of past and present
circumstances.

6. Business Forecasting – Importance: Essence of Planning,
Exactness in Decision-Making, Implementation of Project,
Developing Coordination and a Few Others
Forecasting helps the management in the following ways:
i. Essence of planning – Planning cannot be done without forecasting.
Forecasts are the premises (or basic assumptions) upon which planning and
decision-making are based. Planning without forecasting is impossible.
ii. Exactness in decision-making – Forecasting brings exactness and
accuracy in managerial decisions. It improves the quality and validity of
management decisions. It enables a manager to probe the future economic,
social, and political factors that might influence his decisions.
iii. Implementation of project – Forecasting enables the entrepreneur to
achieve success. It helps the entrepreneur to gain experience and implement a
project on the basis of his experience.
iv. Contribution to business success – The success of a business depends
on the accurate forecasts made by the various departments. It helps to identify
and face environmental challenges with determination. Risks and
uncertainties can be reduced to a great extent with the help of forecasting. It
contributes greatly to the success of the business by warning business against
trade cycles.
v. Developing coordination – Forecasting brings about coordination in the
efforts of the subordinates. It helps to collect information about internal and
external factors and brings unity in the plans. It creates team spirit in the
organization. It helps to integrate various plans so that a unified overall plan
can be developed.
vi. Facilitating control – Forecasting helps in achieving effective control by
providing relevant future information to the management in advance. The
management can be aware of its strengths and weaknesses through
forecasting. It discloses areas where adequate control is necessary for the
efficient and effective operations of the enterprise. It helps in revealing the
weak spots in the organization and thereby improves performance.

7. vii. Smooth working of an organization – Forecasting ensures smooth
and continuous working of an organization. The business can be saved from
the adverse impact of trade cycles through accurate forecasting of sales for the
concerned period. It helps the organization to estimate expected profits on the
basis of forecasted revenues and costs.
viii. Development of a business – The development of a business is fully
based on forecasting. It helps the promoter to assess the feasibility of
establishing a new business by considering expected benefits, costs, risks, and
uncertainties of the proposed business. The success of business depends on
sound forecasting. Forecasting is of utmost importance in setting up of a new
business.
Business Forecasting – Elements: Developing the Ground
Work, Estimating Future Trends, Collection of Results,
Refining the Forecast Process and a Few Others
The following are the important elements of forecasting:
i. Developing the ground work – The first step in the process of
forecasting is its preliminary preparation. It involves collection of basic
information relating to the product, market, competition, environment of the
industry, social factors, political factors, etc. A proper study of these facts helps
in making future estimates.
ii. Estimating future trends – The future can be estimated with the help of
past experience and present performance. The prospects of the future period
can be estimated in consultation with the key personnel and it should be
communicated to all employees of the organization. The management has to
prepare quantitative estimates of future events with key executives.
iii. Collection of results – Relevant records are to be prepared and
maintained to collect the actual results. Irrelevant information can be avoided
while collecting the results. All relevant facts and figures with regard to actual
performance are to be collected and recorded.

8. iv. Comparing actual results with the estimated results – The actual
results are compared with estimated results to know the deviations. This
comparison provides an opportunity to discuss the deviations, their possible
reasons and future trends. The reasons for significant deviations can be
investigated. This helps the management to estimate the future realistically.
v. Refining the forecast process – The forecast can be refined in the light
of deviations which seem to be more realistic. The management should review
the forecasts periodically and revise it according to the experience gained in
the immediate past. In this way, the forecast can be refined and improved.
Business Forecasting – Steps: Understanding the Problem,
Developing the Groundwork, Selecting and Analysing Data
and Estimating Future Events
The process of business forecasting involves the following steps:
Step # 1. Understanding the Problem:
The first step in the forecasting process is the understanding of real problem
about which forecasts are to be made. A manager must know clearly the
purpose of forecasting. Forecasts may be made in regard to technological
conditions, sales, choice of people, availability of finance and so forth. The
clear understanding of the scope of forecasting will help the manager to probe
the relevant information only.
Step # 2. Developing the Groundwork:
In this stage, the manager will try to understand what changes in the past have
occurred. He can use the past data on performance to get a speedometer
reading of the current rate (say of sales or production) and how fast this rate in
increasing or decreasing. This will help in analysing the causes of changes in
the past.

9. Step # 3. Selecting and Analysing Data:
There is a definite relationship between the choice of statistical facts and
figures and the determination of why business fluctuations have occurred.
Statistical data cannot be selected intelligently unless there is proper
understanding of the business fluctuations. The reasons of business
fluctuations will help in choosing the relevant information. After selecting the
data, they are analysed in the light of past changes. Statistical tools can be used
to analyse the data.
Step # 4. Estimating Future Events:
Future events are estimated on the basis of analysis of past data. Here, the
manager must use his past experience and judgement. He must know clearly
what he expects in the future in the light of overall organisational objectives.
He should make an estimate of future business from a number of probable
trends revealed by the systematic analysis of data. The estimated results can be
compared with actual results in the future. This will help in refining the
process of forecasting.
Implicit vs. Explicit Forecasting:
Forecasting may be either implicit or explicit. When a manager makes
forecasts on the basis of his past experience and intuition, he is said to be
implicitly forecasting the future events. This approach is generally not
successful because it is unsystematic, not very reliable, not very precise and not
very accurate. Implicit forecasts cannot be rationally evaluated and so cannot
be used as rational basis for planning and control.
Therefore, it is generally more useful to consciously forecast and develop
explicit planning premises. Explicit forecasts are systematic and are likely to be
more reliable, precise and accurate. They can be used as the basis for rational
analytical evaluation and also for control purposes. The various techniques of
explicit forecasting have common into existence. They include time series
analysis, regression analysis and econometric models.

10. Business Forecasting – Techniques: Survey Method, Index
Numbers, Time Series Analysis, Regression Analysis, Jury of
Executive, Econometric Model and a Few Others
Various techniques of forecasting are used in the field of business. Techniques
are used in forecasting to reduce the possibility of errors.
Some of the techniques are enumerated below:
i. Survey Method:
Field surveys can be conducted to collect information regarding the attitude of
people. Information collected (both quantitative and qualitative) by this
technique is useful for proper forecasting. The survey method is suitable for
forecasting the demand of both the existing product and new products.
ii. Index Numbers:
Index numbers are used to measure the state of condition of business between
two or more periods. Business trends, seasonal fluctuations, and cyclical
movements are studied with the help of index numbers. Index numbers
indicate the direction in which the business is going on. Business activity index
numbers are used as barometer to forecast the future trend of a business.
iii. Time Series Analysis:
In time series analysis, the forecast is made on the assumption that past
activities are good indicators of future activities. In other words, future
activities are the extension of the past. A trend can be known from the past
data (over a period of time) which is utilized for predicting future trends. This
technique can be suitably applied where the future is more or less similar to
the past. Here, forecasts are based on the assumption that business conditions
remain unchanged in the future.
iv. Regression Analysis:
Regression equations are used for predicting the average value of one variable
when the movements of other variables are known. Normally, regression
equations are based on two or more inter-related variables. The variables may
be cost, production units, profit, sales volume, etc. Forecast is made on one
variable when specific values of other variables are known. A change in the

11. value of one variable has an effect on the other inter-related variables. Forecast
can be made from direct linear regression equations.
v. Jury of Executive Opinion:
The opinion of experts is sought and the meritorious one is accepted. The
opinions may be sought on the areas of sales, purchase, finance, production,
etc. Here, the views and opinions of experts are brought together for the
purpose of forecast. This method is based on opinion rather than facts. Ideas of
the experts are evaluated for their feasibility and profitability. Experts may be
requested to comment on the opinions of others in order to arrive at a
consensus.
vi. Econometric Model:
Econometric models are more scientific in tackling forecasting problems in the
disciplines of economics, statistics, and accounting. The complex relationship
of numerous variables is responsible for the future behaviour of one variable.
This forecasting technique is applied in projecting Gross National Product. A
predictive model is developed through a computer from various variables
related to the business activity. The past data is used to know the degree of
relationship prevailing among various variables.
vii. Input-Output Analysis:
A relationship between input and output is established on the basis of past
data. A forecast of unknown variables can be made when the input-output
relationship is known. The input requirements of a production can be
forecasted when output is known quantitatively. On the contrary, output can
be forecasted on the basis of a given quantity of inputs. Here, the prevailing
inter-relationship among the various sectors of the economy can be well-
established. This technique yields sector-wise forecasts and is extensively used
in forecasting business events.
viii. Delphi Method:
The task of forecasting is done in consultation with persons who are directly
related to the problem. A panel of experts is prepared. These experts are
requested to give their opinions in writing for a prescribed questionnaire.
Their opinions are analysed, summarized, and submitted once again to the

12. same experts for future consideration and evaluation. This process is
continued till a consensus opinion is obtained. This technique is most suitable
for situations where past data is not available.
Business Forecasting – What Exactly Goes into Forecasting?
Both macro and micro-economic factors, including such common factors
as price levels, inflationary trends, monsoons, international industry trends,
governmental changes, cost of finance, the company’s own plans, its
competition, customer preferences, technological innovation and of course the
annual budget.
Forecasting may be for a period of three months, five years and even for
20 year periods, but the shorter ones are more widely in use. Short-term
forecasting focus on the movement of the economy through the business cycles
and any organization whose business is sensitive to cyclical economic
conditions and cyclical demand changes is interested in short-term forecasts –
the retail trade and the automotive sectors, for instance.
A forecast is a mere assessment of future events. A forecast includes
projection of variables both controllable and non-controllable that are used in
development of budgets. A budget is a plan, whereas a forecast is a prediction
of future events and conditions. Forecasts are needed in order to prepare
budgets. The Sales manager will prepare sales forecasts and the Production
manager will forecast production and resource requirements.
In forecasting events that will occur in the future, a forecaster must rely
on information concerning events that have occurred in the past. That is, in
order to prepare a forecast, the forecaster must analyze past data and must
base the forecast on the results of the analysis.
Forecasters use past data in the following way:
(a) The forecaster analyzes the past data in order to identify a pattern that can
be used to describe it.
(b) The pattern is extrapolated or extended into the future in order to prepare
forecast.

13. The basic Strategy is employed in most forecasting techniques and rests
on the assumption that the pattern that has been identified in the past will
continue in the future. A forecasting technique cannot be expected to give good
predictions unless this assumption is valid.
The object of business forecasting is not only to determine the trend of
figures that will tell exactly what will happen in future, but also to make
analysis based on definite statistical data, which will enable the firm to take
advantage of future conditions to a greater extent than it could do without
them.
In the words of Henry Fayol ‘forecasts are not prophecies, their function
is to minimize the unknown factors’. While forecasting, one should note that it
is impossible to forecast the future precisely. There always must be some range
of error allowed for it in the forecast.
Short-Term Forecasts:
Short-term forecasts are forecasts of sales, costs or resource
requirements and so on for up to about one year ahead. They are usually
prepared by extrapolating historical data. On the assumption that future
operating trends and characteristics will, in the short-term at least, be a
continuation of recent trends and current operating characteristics.
Another requirement for short-term forecasting is the need to
establish relationships between key quantities, such as the
relationship between the following:
(a) Production quantities and total production costs.
(b) Production quantities and resource requirements (materials, labour,
machine capacity etc.)
(c) Sales quantities and selling costs, and warehousing capacity and so on.
(d) Sales quantities and time (trend analysis)

14. Business Forecasting – Selection of Suitable Business
Forecasting Technique: Forecast from Desired, Time Pattern,
Pattern of Data, Cost of Forecasting and a Few Others
In choosing a suitable business forecasting technique the forecaster
must consider the following factors:
i. Forecast from Desired:
The forecast form can vary between obtaining a point estimate or a prediction
interval. The form of the forecast can influence the choice of forecasting
method used.
ii. Time Pattern:
The time frame or time horizon is the total period over which forecasts are
required. Is it a week, a year or perhaps ten years? The longer the time period
the more difficult the forecasting becomes, and the more useful qualitative
methods become.
iii. Pattern of Data:
The important aspect about the pattern of data is whether a time series or
some cyclical pattern exists within the data. This will dictate the forecasting
technique to be used.
iv. Cost of Forecasting:
The cost of forecasting may vary significantly depending on the cost of
collecting and storing the data. The costs of forecasting should be compared
with the value of having good accurate forecasts.
v. Accuracy Required:
Perhaps crude forecasts are sufficient in a particular situation. In a different
problem a very accurate forecast is required.
vi. Availability of Data:
The choice between quantitative and qualitative approaches will depend upon
whether suitable data is available or can be collected.
vii. Case of Operation and Understanding:
The strategist must be able to understand and explain the forecast
methodology used. If he does not understand the methodology he will not have
confidence in the results. There is also a danger that he will not foresee, the

15. parameter of the model needs to be changed because of underlying changes in
the data.
Business Forecasting – Factors Affecting Business
Forecasting: Internal Factors and External Factors
The following are the factors which affect a business forecasting to
a greater extent:
(A) Internal Factors:
These factors are related to the internal structure of the business which may
further be divided into the following major factors. The factors enumerated
below are those factors which arise out of the nature and size of the business
and which affect the forecasting to a greater extent as compared to those which
are categorized as external factors.
The broad divisions are:
(1) Past statistics relating to the business;
(2) Data in respect of –
(a) Cost of materials;
(b) Wage rates;
(c) Cost of Capital;
(d) Capital requirements; etc.
(3) Financial resources;
(4) Future expansion plans;
(5) Plans for product development;
(6) Future business requirement, etc.
(B) External Factors:
These factors are related to those factors which are not directly connected with
the nature and size of the business and over which the management of the
business has either little or no control. These are those factors over which no
one in the business has a worthwhile control. Instead one has to swim or sink
with the external factors.

16. These factors have been divided under the following sub-factors:
(1) Political Stability:
If the nation is practically stable the business flourishes. Thing outside the
business remain static and stable. Generalisation come true and so the
forecasts.
(2) Government Restrictions:
Today Government all over the world are interfering more and more in
business activities through various restrictions and control. If these are
announced on long-term basis forecasting becomes easy and if they are for a
short period forecasting is rendered difficult.
(3) Fiscal and Monetary Policy:
The fiscal and monetary policy affects the business activity. The rigidity or
flexibility of the policies do not affect the forecasting if once it is known to the
business world that the state will pursue a rigid or flexible policy. But
frequency of changes in the policy does affect the forecasting. From forecasting
point of view a flexible but less frequency changing fiscal and monetary policy
is regarded as good.
(4) Population:
On population depends demand forecasting. The statistics on population is
collected by the government which is usually used for the purpose of business
forecasting.
(5) Statistics on Employment Productivity and National Income:
Their availability source and reliability to help in forecasting and affect its
process.
(6) Price Level and Trend:
Frequent and wild changes in price levels do adversely affect the forecasting.
On the contrary stable price trends help in achieving the objectives of
forecasting.
(7) Technological research and development.
(8) Export potentialities.
(9) General business environment.

17. Business Forecasting – Need
The need of business forecasting cannot be over emphasised. It provides
valuable service to the business world. The business today is competitive which
need not only constantly review the current policies, priorities and
programmes but it also needs a perfect forecast about the future so that future
policies and programmes of the business may be finalised today and action
may be taken in the finalised future policies and programmes.
The following are important reasons for which forecasting becomes
a necessity:
(i) To estimate all business activity,
(ii) To execute the plans of the business effectively,
(iii) To determine the managerial activities and help the management in
effectively managing the affairs of the enterprise,
(iv) To estimate and ascertain the nature and span of control,
(v) To establish better and effective co-ordination,
(vi) To help the business growth in desired direction,
(vii) To help in achieving the objectives of the business enterprise.
Business Forecasting – Kinds: General Business Forecasting,
Special Business Forecasting, Long-Term Business
Forecasting and Short-Term Business Forecasting
Normally, there are four kinds of business forecasting.
They are:
(1) General Business Forecasting.
(2) Special Business Forecasting.
(3) Long-term Business Forecasting.
(4) Short-term Business Forecasting.
(1) General Business Forecasting:
This kind of business forecasting relates to:
(a) General business nature;
(b) General return rate;
(c) General business trends.

18. (2) Special Business Forecasting:
This relates to forecasts connected with specific industrial and business
problems based on special skill of the businessman who makes use of his
experience and judgement.
(3) Long-Term Business Forecasting:
This kind relates to forecast for long-term nature, say forecasts for 5 years, 7
years, 10 years or even for a longer period. Though forecasts for longer period
are not regarded usually safe, correct, useful and right step in right direction.
But industrial and business houses resort to long-term forecasting in order to
plan their future business strategy though differences and wild variations are
bound to crop up in future which may sometime lend the business enterprise
into helplessness.
(4) Short-Term Forecasting:
The short term forecasting relates to a short-term period which may even be
for a day or a week taking into consideration the immediate future. Sales and
cost forecast are of short-term nature.
Business Forecasting – Requisites of a Sound Business
Forecasting: Forecasting is Not a Guess Work, Use of
Statistical Data, It is a Regular Features and a Few Others
The economics of business forecasting in true sense of the term refers to
the requisites of forecasting. The requisites make the forecasts sound and
logical which lead to near perfection stage.
The requisites of a sound business forecasting may be enumerated
as under:
(1) Forecasting is Not a Guess Work:
Forecasting should not be regarded as merely a guess work not it should be
taken as such. It should be based on statistical and mathematical methods and
on complete, up-to-date and reliable information’s. Estimate should be arrived
at after due analysis of facts and figures. They should be based on sound
judgement and scientific analysis.

19. (2) Use of Statistical Data, Etc.:
Use of complete up-to-date reliable arid relevant statistical data and other
relevant information’s are pre-requisites of a near perfect business forecasting.
Nothing should be left to mere guess. As far as possible complete and primary
data should be used. The collection of data and other relevant information’s
should, however, be done on the basis of predetermined objectives.
(3) It is a Regular Feature:
Any change in business circumstances should be incorporated and forecasts be
adjusted accordingly. Forecasts should be kept up- to-date and alive.
(4) Division of Forecasting Period:
The period of forecasting should be divided into period of different spans by
taking into consideration the nature and purpose of forecasts. Such a division
will render the forecast more perfect and may prove more effective so far as the
decision taken on the basis of such forecasts are concerned Agriculturists in
India may have ‘nine months’ forecasts while a dress manufacturer may have
‘three months’ period.
(5) Proper Balance in Various Factors be Maintained:
While forecasting a proper balance between special skill, technical knowledge,
business qualities and general wisdom should be maintained. For reliable
business forecasts striking balance between varying degrees of skill etc., is a
necessary. No businessman can match the natural scientist. But a fair amount
of accuracy can be ascertained by the businessman also if he strikes a good
balance between his available skill, knowledge, quality and wisdom.
(6) Forecasts Should be Flexible:
Forecasts are not always true. This fact should always be kept in mind by the
management by the enterprise. For this reason alone the management should
provide sufficient scope for adjustment in its planning and decisions. Plans
and consequent decisions based on forecasts should be flexible so that
adjustment may be made whenever there is necessity to do so.

20. (7) Relevant Necessary information:
The following are relevant necessary information which are
required for any reliable business forecast:
(a) Prices of commodities used in the production and their substitutes.
(b) The wholesale and general price level.
(c) The industrial production indices.
(d) National income-trends and indices
(e) Manufacture-their product, sale and inventory.
(f) Employment data with particular references to demand and supply of the
wage-earners.
(g) Wages and labour indices.
(h) Trends in bank deposits.
(i) Report on fiscal and monetary policy of the government.
(j) The purchasing power in the hands of various sectors of the consuming
public.
(k) The import and export policy of the Government.
Business Forecasting – Limitations: Based on Assumptions,
Uncertainty of the Future, Lack of Skill of Experts, Time and
Cost Factors and a Few Others
The following are the limitations of forecasting:
i. Based on assumptions – Forecasting is made on the basis of certain
assumptions and human judgements. Faulty assumptions and human
judgements will yield wrong results.
ii. Uncertainty of the future – Forecasting helps to know the future. It is a
prediction of future events. But there is uncertainty of occurrence of such
events. Forecasting cannot eliminate the margin of errors and the possibility of
mistakes.
iii. Lack of skill of experts – Forecasting is more of an art than a science. Its
success largely depends on how skillfully it is put into practice. It requires a
high degree of skill. But in practice, very few experts are available for
forecasting.

21. iv. Lack of reliable information – Proper forecasting needs adequate and
reliable information. It is very difficult to collect reliable data and information.
Hence, it is not possible to forecast correctly due to lack of reliable
information.
v. Far from absolute truth – Forecasting is not an accurate science. There
is no fool-proof method of predicting the future. In reality^ forecasts are
seldom recognized as true, due to a high degree of uncertainty of the future.
vi. Time and cost factors – Forecasting involves collection of information
and conversion of qualitative data into quantitative data. This involves a lot of
time and money. Therefore, forecasting is both expensive and time-consuming.
vii. Ever-changing business conditions – Business conditions are dynamic and
ever-changing. They can never be forecast accurately. Forecasting does not
specify any concrete relationship between past and future events.
Business Forecasting – Suggestions for Making Forecasting
Process More Effective: Proper Collection of Required Data,
Scientific Approach and a Few Others
Following may be the important suggestions for making the process
of Business forecasting more effective:
(1) Proper collection of required data- Required data must be collected
properly and from reliable sources before making the forecasting because the
reliable data is the real base of effective forecasting.
(2) Detailed analysis of data collected- Data collected must be analysed in
detail so that the line of action may be decided and final decision be taken.
(3) Forecasting must be a continuous process- Forecasting should be
adopted as a continuous process and not as a function. It must be a continuous
process.
(4) Forecast must be flexible- There must be sense of flexibility in
forecasting process. Therefore forecast must be flexible so that necessary
changes may be made in forecasts. Rigid forecasts may fail in the changed
circumstances.

22. (5) Forecasts must be for short term- Forecast must be made for short
term. Forecast made for long period cannot be successful because the
circumstances and the situations may change in the long run.
(6) Assumptions be adopted carefully- Assumptions are must for
forecasts but the assumptions must be adopted after a careful study of the
reliability and feasibility of assumptions.
(7) For the success of forecasts, the managerial co-operation is
essential- The cooperation of all levels of management especially the
managerial co-operation is essential and it must be obtained and the opinions
of all persons concerned with the forecasts must be collected.
(8) Forecasts must be impartial- Forecasts should not be partial. Every
best effort must be made to take it sure that the forecasts are not only the
opinions of the persons making forecasts.
(9) Scientific approach- Forecasts must be made based on scientific
techniques and methods. Only the guess and the estimates cannot be effective
forecast.
(10) Forecasts must be in accordance with the circumstances-
Forecasts must be based on careful study and analysis of the past incident. In
addition to this, present situations and circumstances of the business
enterprise also should be taken into account very well.
(11) Person forecasting must be experienced, efficient and possess
perfect knowledge of the subject- Person who has not got knowledge of
the situation and is not an experienced man and efficient, he will not be able to
make forecasting in perfect and scientific manner.
In the end it can be said that forecasting in business is essential and on the
basis of this the producer produces goods. Therefore, success in business
entirely depends upon perfect and well-judged forecasting.