Methods of Forecasting
Various techniques which are generally used in business forecasting are as under:
1. Forecasting through the opinion of heads of department
2. Forecasting through the opinion of workers
3. Marker Research
4. Expert Opinion
5. Index Numbers,
6. Time Series Analysis
7. Expert polation,
8. Regression Analysis
1. Opinion of Heads of Department: Since the departmental heads are fully aware of problems of the department, they may forecast about the likely requirements to overcome the problems related to their respective departments. They may analyse their problems on the basis of past historical records and their own expert knowledge. For example sales manager can better forecast about the future sales activities. Similarly, other heads of the department shall also forecast the figures for next year.
2. Opinion of Workers or Jobmen : In this technique forecasting is done by those personnel who have longer and closer link with the problem .It is done by the personnel of each concerned department and after their scrutiny analysis and interpretation , may be approved by the head of the department. Thus that becomes the forecast for that department.
3. Market Research: Big business enterprises adopt this technique, such organisations have a separate department for carrying this task, known as market research department. Scientific techniques may also be adopted by this department. The department prepares forecasts by studying nature, taste, demand, fashion etc.
4. Expert opinion Delphi Method: In this method the opinion is sought from expert about particular product. It's all experts express their opinion in favour, it is accepted. In case all of them do not agree upon one thing, the meeting will be called again and every aspect of it will be discussed. In this manner, the gap between diversified opinions can be reduced.
5. Index Numbers : These are regarded as the barometers of business activity .They indicate the periodic changes taking place in different economic phenomena such as gross national product, pries cost of living wages etc. The important indices used for this purpose are those showing changes in prices industrial and agricultural output, employment, bank deposits, currency in circulation , stock and share prices etc. Index numbers are constructed for general business activity which tells the general conditions of trade and industry. These can be used for business forecasting also.
6. Time Series Analysis : The method of forecasting involves determination of secular trend and seasonal variation in a time series and then projecting them in future, In the chapter of analysis of time series we have studied how different components are separated and studied individually. Using time series data forecasts may be made.
1. On the basis of leading series by taking published series which has historically preceded the series which is to be forecasted.
2. On the basis of present of aggregate activity which can be computed for a firm for a period of several years. This percent of aggregate activity figures can be obtained and plotted by mean of least squares trend line. These plotted points may be extended to obtain trend percentage for some future period.
7. Extrapolation: It refers to projecting a value at a future point of time from the data relating to some variable for a certain period. This method can give most likely estimates based on certain assumptions.