Forecasting is an essential function for every type of business, and it is an essential element of your company's strategic planning efforts. Forecasting provides your business with the information needed to effectively plan for production, inventory, human resources and financial needs of your company. Your businesses's administrators need accurate forecasting data to make decisions that ensure the continued sustainability of your company.

Strategic Forecasting

Your company's strategic planning depends on accurate forecasting data to develop and support your business vision. Strategic planning establishes the goals your company expects to reach over a long period of time. Forecasting provides administrative data such as expected annual sales figures, expected costs and expected return on investment. The ultimate goal is for your company to maintain a competitive advantage that allows consistent financial growth, providing not only good income for yourself, but long-term security for your employees.

Qualitative Forecasting

Qualitative forecasting is concerned with understanding the decision-making processes of your existing and potential customers. Draw data for your existing customer base from the records you have kept over the reporting period. Using questionnaires and surveys will help you glean data on how your products will be received by other consumers in your area. The research data provided to you should be designed to enable you to use your best judgment about sales over future reporting periods.

Quantitative Forecasting

Quantitative forecasting is based on mathematical data, eliminating variables related to human opinions, judgments and human experience. Use performance data recorded over specific time periods or over specific events such as holidays, seasonal changes and natural disasters to develop an accurate picture of customer buying habits. The primary risk associated with depending strictly on mathematical calculations for your company's forecasting is that you eliminate the opportunity to adjust for variables in human behavior.

Time and Averages

Time forecasting uses data from your current sales or production cycle to predict what will happen in the next reporting period. It also involves taking data gathered over a number of reporting periods and averaging the data to develop a forecast. Forecasting based solely on data from a time or average of time periods will provide a lower level of accuracy than you need to predict your company's sales, production and personnel needs in the future. Successful companies use a combination of forecasting methods to develop an accurate prediction of future performance.