Forecasting is a tool that helps management predict future business operations. Forecasts allow businesses to adjust to ever-changing markets and allow business leaders to analyze trends, cycles, seasonal patterns, and random variations in product demand. There are two categories of forecasting: quantitative and qualitative.
Quantitative forecasting involves the use of historical data and mathematical relationships to predict future business operations. Examples include time series and regression. Time series forecasting relies on statistical techniques and historical data and assumes that what has occurred in the past will occur again in the future. Regression, on the other hand, measures the relationship of one variable to one or more other variables. In contrast to quantitative methods which rely on statistical and mathematical approaches to forecasting, qualitative forecasting methods rely on judgment, expertise, and opinions to make forecasts. An example of a qualitative forecasting technique is the Delphi method. Businesses often use a combination forecasting methods to predict and plan future business operations.
Sales forecasts are used daily in the retail business to predict product demand and determine the amount of inventory needed on hand to satisfy customer demand. Retailers need to have an adequate amount of inventory on hand because inventory shortages decrease sales while inventory surpluses increase costs.
Forecasting is the process of estimating the future based on past and present information. Forecasting is used allot in the business world. Businesses use forecasting to help estimate their future business. Forecasting is the baseline of companies to measure performance, and determine plans to address performance gaps.
Currently as a special education teacher we use forecasting when its comes to estimating our student transfer back to public school. By forecasting our transfer ratio we are able to meet our students needs and gain understanding as to what to expect the next year!
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