Forecasting methods

Essay by irinukUniversity, Bachelor's March 2007

download word file, 6 pages 5.0

Forecast is one of the major management functions. It is definitely the most important one for companies that operate in a changing business environment. Good forecasts help management teams asses risks and develop long-term strategies. Although Earth doesn't spin faster around the Sun, everything on the planet has picked up speed. Nothing stays the same for long The business world has changed dramatically over the last couple of decades, in ways that many couldn't foresee. The ones who did manage are now in the top of all classifications. This states the importance of good predictions.

A business forecast is a prediction based on past performance and an analysis of expected market conditions. The great value in making a forecast is that it forces a company to look at the future in an objective manner. In taking note of the past it stays aware of the present and thoroughly analyzes that information to see into the future.

It also helps to better monitor business and to set realistic objectives.

But what makes a good forecast? There are many methods that can be used to make business forecasts. All of them with their own pros and cons. Some of them are based on statistics, others on experience. The most important aspects and qualities that have to be considered when making projections are professionalism, thorough research, intuition and instincts or open-mindedness. Each method relies more or less one of these traits. There is no foolproof technique. Forecasting, is, mainly, an uncertain territory. It is an oracle's job done by every manager.

There are a few main families of methods, each based on different beliefs: statistical methods, theoretical ones, econometric, consensus, research or simulation methods. In the following I will discuss each one and cross-analyze them, revealing similarities and contrasts. All this will be...