Jasmeet Kohli

Monday 22 October 2018

Forecasting: Why is it required?

Forecasting in business is a very critical activity done by organizations to predict future outcomes based on historical data & the management views for budgeting, planning & estimation in order to prepare the organization to achieve its goals & targets. It helps in determining the success of the business & minimizing the role of “luck, chance, gut feeling, etc.” in critical business decisions.

1. Promotion of business: Forecasting helps in the promotion of business by anticipating the uncertainties and risks in the business & taking appropriate measures. It also helps in estimating the demand for products & services & how to increase the demand, how the organization will face the competition, etc.
2. Efficient capital utilization: The capital requirements of a business depend entirely on sound financial forecasting. Forecasting helps in estimating the financial requirements of a business & efficient utilization of the capital by calculating the potential sales & costs & forecast the funds required for other important things like expansion, development etc.

3. Smooth running of business:  Accurate forecasting helps the organizations know their expected earnings to regulate their cash flow to meet their operational expenses & other financial commitments.  
4. Good decision making: The correctness of management decisions related to utilization of resources for production, is heavily dependent on accurate forecasting. It also helps the business to face adverse conditions & unforeseen contingencies.
5. Success in business: Accurate sales forecasting helps in preparation of plans of other depts in the organization like procurement of raw materials, financial planning of working capital, manpower planning about how much people are required, production planning about what & how much to produce, etc.
6. Plan Formulation: Forecasting is an essential element in planning since planning premises include forecast data having enormous implications. In fact, forecasting is done prior to planning in order to make effective & robust business plans. Hence, forecasting and planning are closely related & so is their success.
7. Co-Operation and co-ordination: Forecasting is a herculean task that requires cooperation & coordination between all the depts in a company. A crucial byproduct of forecasting is team spirit and coordination which greatly improves the work culture in the organization.
8. Effective Control: Forecasting helps the different depts. & their key decision makers about their weaknesses & helps in implementing appropriate measures to overcome these weaknesses & achieve better control they can overcome these weaknesses.

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