What is Forecasting? Benefits and Methods

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Do you know about forecasting or forecasting in the business world? The following is the explanation. They are tools and techniques used to predict business developments, such as sales, expenses, and profits.

Forecasting, also known as business forecasting, involves making informed guesses about certain business metrics, such as sales growth, or predictions for the economy as a whole. Companies carry out business forecasts to determine goals, targets and project plans in each new period, whether quarterly, annual or even planning for the next 2-5 years.

With forecasting, business managers will be helped to guide strategy and make decisions based on information about business operations. So, when done correctly, forecasting can make informed business decisions.

What is Forecasting?

What is Forecasting? Benefits and Methods

Forecasting is a term in the business world. If translated into Indonesian, 'forecasting' means forecasting. So, in a business context, what is forecast?

In the business world, forecasting is closely related to planning. Companies carry out forecasting to measure how big the chances of success are. At the same time, forecasting also offers measurements to determine potential losses.

In the business world, forecasting is a method for predicting the future of a company entity. Even so, forecasting not only predicts the future of the entire company, but also the decisions taken. This method is applied to obtain an estimate of the success or failure of the decision.

Forecasting is done by referring to the company's historical data. For example, a company wants to know the estimated demand in 2023. So, the team must look at historical data related to raw materials, production operations, budgeting, and inventory. Companies can also view demand graphs from previous time periods.

This forecasting method will help companies to examine current policies and their implications in the past, present and future. Apart from that, business forecasting is also important for preparing references. With this reference, the company will not lose direction while implementing a new policy.

In making forecasts, companies use historical data to determine the course of business in the future. With forecasting, a company can anticipate future expenses and know the right way to allocate the budget.

To forecast, a company uses historical data from primary sources and secondary sources. The following is the explanation, as quoted from the Corporate Finance Institute page.

a. Primary Sources

In primary sources, an organization or person who carries out forecasting is usually obtained from various questionnaires, focus groups, or interviews.

Usually, primary sources are the most reliable sources of primary data even though they are actually quite difficult to collect and centralize.

b. Secondary Sources

Furthermore, there are secondary sources that provide information that has been collected and processed by third parties. An example of this type of information might be an industry report.

With secondary sources, the business forecasting process will be more efficient because the data is well organized and compiled.

What are the factors using a forecasting technique?

What is Forecasting? Benefits and Methods

There are several factors that must be present and influence the forecasting or forecasting method. The following are several factors studied in the forecasting method.

1. Product Nature

Product is certainly a factor that needs to be studied in forecasting techniques. In carrying out forecasting techniques, companies can see the nature of the product which is related to the sustainability of the product to be produced and marketed.

2. Company Position Among Competitors

Another factor that can be studied in the forecasting method is the company's position among its competitors, whether it is superior or at a lower level.

3. Historical Data

Another important factor in forecasting techniques is historical data, namely a number of data relating to a company's business activities in several previous periods.

What are Types Forecasting?

Forecasting methods consist of several types. According to Render and Heizer in Principles of Operations Management, here are several types of forecasting.

1. Economics Forecasting or Economic Forecasting

Economic forecasting is a type of forecasting method used to estimate the level of inflation, availability of money, funds needed to run production, and other planning indicators.

2. Technological Forecasting or Technology Forecasting

Technological forecasting is a type of forecasting method that aims to spot technological advances that could launch exciting new products and that require new plants and equipment.

3. Demand Forecasting or Demand Forecasting

Demand forecasting is a type of forecasting method for predicting projected demand for a company's products or services.

Apart from that, forecasting can also be grouped based on the prediction period, such as short term forecasting (next 1-5 weeks), medium term (1-24 months), long term (2-10 years).

What are benefits of forecasting?

Benefits of Forecasting in Business

According to Business Solutions Inc, forecasting is very valuable for businesses because it provides the ability to make informed business decisions and develop data-based strategies.

Companies can also make financial and operational decisions based on market conditions, so future predictions can also be seen.

This is because forecasting is done by collecting data in the past and analyzing it to find patterns, which are ultimately used to predict trends and changes in the future. Furthermore, here are the benefits of forecasts in a business:

1. Helps in Determining Goals and Plans

Forecasting allows a company to clearly define its goals and plans. The goals and plans set are also seen based on current and historical data. In this case, company goals and plans are made through accurate data and statistics.

This information is then analyzed, thereby helping the business decide the amount of change, growth, or improvement that will be determined as the point of success.

That way, it will be easier for companies to evaluate progress, and adjust business processes if necessary to continue on the desired path.

2. Helps Set a Budget

Forecasting can also help a company determine the size of the budget in their business. Starting from budgets for products, services, or internal areas such as recruiting and strategy adjustments.

So, the budget that has been allocated is right on target because it has gone through the best possible forecasting process beforehand. Not only that, the company can estimate the amount of revenue that will be achieved in the coming period.

3. Anticipate Market Changes

Apart from that, forecasting can anticipate companies in facing market changes that can occur at any time. By analyzing historical data and current data through forecasting, a company can make projections about what could happen in the future.

This can help businesses make adjustments to business strategies and change operations so they can still achieve the desired targets. It is important for a business to always adapt to the trends that are taking over the market and optimize resources to keep them afloat.

4. Helps Decision Making

In business, not all planned processes can run smoothly because there may be several obstacles that accompany them.

So, forecasting can also be used to find solutions when a business experiences these obstacles. The reason is, forecasts are able to provide the information a company needs in making future business decisions.

5. Increase Business Success

Through historical data and currently available information, forecasting can be used to increase the chances of business success. This is because forecasting can help companies predict important metrics.

Starting from the amount of raw materials needed, the budget that needs to be allocated to each department, to the estimated number of future sales.

With these predictions, it will be easier for companies to allocate their funds and resources so that they can achieve targeted business success.

What are Forecasting Methods?

Methods in Forecasting

There are also several methods used in business forecasting, namely:

1. Quantitative Method

Quantitative forecasting is forecasting carried out using descriptive opinions and analysis. This type of business forecasting offers subjective results because it consists of personal assessments by experts or forecasters.

Forecast results are also often biased because they are based on expert knowledge, intuition, or experience, and rarely on data, making the process non-mathematical. In practice, quantitative methods are also further grouped into 2, which include:

a. Time Series

This forecasting is done by connecting the relationship between the dependent variable and the independent variable. Then, it is linked to time, such as weekly, monthly or yearly.

In this case, forecasting looks for time variables which can be done using the smoothing method, the Jenkins box method, or the trend projection method with regression.

b. Casual Method (Cause and Effect)

The casual or causal method is based on the relationship between the estimated variable and the variables that influence it. However, the variable sought is not a form of time.

In this case, forecasting can be done using regression and correlation methods, input output methods, or econometric methods.

2. Qualitative Method

Forecasting using qualitative methods is done by connecting and analyzing different variables to establish cause and effect between events, elements and results. The following are several methods that can be used in quantitative forecasting:

a. Market Survey

Market surveys are carried out by seeking consumer opinions that influence purchasing plans during the observation period. In this case, the survey can be conducted through questionnaires, direct interviews, or telephone interviews.

b. Opinion from Executives

Next, there is the executive opinion method which is carried out by asking for opinions from a small group consisting of marketing managers, production managers, engineering managers, financial managers, and logistics managers. Then, the results will be combined using statistical methods.

c. Combined Sales Force

This method is carried out by combining sales personnel and then they make predictions about the sales level for each region. To then be combined at the provincial and national levels.

What is an example of business forecasting?

Example of Forecasting

To better understand forecasting methods in the business world, see examples of forecasting cases and how to solve them below:
It is known that a company has predicted sales in February of 142 units. However, actual demand was 153 units. The constant chosen by management is 0.20.
Asked: How is March forecasted using the exponential smoothing model?
New forecast = 142 + 0.2 (153 – 142)
= 142 + 2.2
= 144.2
So, the demand forecast for March is 144 units.


These are several forecasting methods that you can use. Forecasting or forecasting is very important for planning and monitoring production activities for both products and services.

So it will be easier for your business to progress. To make it easier for you to manage stock, Jurnal has an Inventory feature. Thus, the forecasting method is an important activity in a business. This forecasting activity is very useful for monitoring production activities in both goods and service companies.

The results of this forecasting activity can be used as a reference for making production and even marketing decisions. A good decision is a decision based on considering what will happen in the future period.

Effective production decisions or production planning are then able to reduce waste of the company's budget. Company budget expenditure can be minimized because future resources can be regulated in quantity.

The more errors can be minimized, the greater the income the company will receive.
That is an explanation of what forecasting is, along with its benefits and methods. Hopefully the information is useful, OK!

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