This document discusses various methods for business forecasting. It defines forecasting as using past and present data mixed with economic considerations to estimate future business activity. Some common techniques mentioned are regression analysis, time series analysis, and index numbers. Specific methods covered include the naive method, economic rhythm theory, barometric methods, diffusion index, and cross-cut analysis. The diffusion index tracks the percentage of expanding or contracting factors over time to gauge the overall business cycle. Cross-cut analysis involves thoroughly analyzing all present factors and their composite effect to forecast future business conditions.

1. Forecasting
R. Muthukrishnaveni
Assistant Professor

2. Introduction
• Time series data is towards forecasting the likely
value of variable in future.
• The projection of trend fitted into the values
regarding a variable over a sufficiently long
period by any of the methods
• Importance of forecasting in business and
economic fields lies on account of its role in
planning and evaluation

3. Meaning
• Forecasting is different from predictions and
projections
• Regression analysis, time series analysis, Index
numbers are some of the techniques through
which the predictions and projections
• Forecasting is a method of foretelling the course
of business activity based on the analysis of past
and present data mixed with the consideration
of ensuring economic policies and circumstances

4. Definition
• According to T.S.Levis and R.A. Fox,
“ Forecasting is using the knowledge we have at
one time to estimate what will happen at some
future movement of time”.

5. Methods of Business forecasting:
• Naive method
 economic rhythm theory
• Barometric methods
 Specific historical analogy
 Lead- Lag relationship
 Diffusion method
 Action –reaction theory
• Analytical Methods
 Factor listing method
 Cross-cut analysis theory
 Exponential smoothing
 Econometric methods
Some of the method discussed
below for the Use of Social
studies

6. Economic rhythm theory
• Manufactures analysis the time-series data of his
own firm and forecasts on the basis of
projections
• Applicable only for the individual firm for which
the data are analysed
• this method are not very reliable as no subjective
matters are being considered.

7. Diffusion method of Business
forecasting
• Principle that different factors, affecting
business, do not attain their peaks and troughs
simultaneously
• The convenience that one has not to identify
which series has a lead and which has a lag
• The diffusion index depicts the movement of
broad group of series as a whole without
bothering about the individual series.

8. Diffusion method of Business
forecasting
• The diffusion index shows the percentage of a
given set of series as expanding in a time period
• It should be carefully noted that the peaks and
troughs of diffusion index are not the peaks
troughs of the business cycles
• All series do not expand or contract concurrently

9. Diffusion method of Business
forecasting
• Hence if more than 50% are expanding at a
given time, it is taken that the business is in the
process of booming and vice - versa.
• The graphic method is usually employed to work
out the diffusion index
• .The diffusion index can be constructed for a
group of business variables like prices,
investments, profits etc.

10. Cross cut analysis theory of Business
forecasting:
• Thorough analysis of all the factors under
present situations has to be done and an
estimate of the composite effect of all the factors
is being made
• This method takes into account the views of
managerial staff, economists, consumers etc.
prior to the forecasting
• The forecast about the future state of the
business is made on the basis of overall
assessment of the effect of all the factors.