APPROACHES TO FORECASTING

Forecasts can be of three types, which are explained as follows

1. Short Period Forecasts:
Refer to the forecasts that are generally for one year and based upon the judgment of the experienced staff. Short period forecasts are important for deciding the production policy, price policy, credit policy, and distribution policy of the organization.

2. Long Period Forecasts:
Refer to the forecasts that are for a period of 5-10 years and based on scientific analysis and statistical methods. The forecasts help in deciding about the introduction of a new product, expansion of the business, or requirement of extra funds.

3. Very Long Period Forecasts:
Refer to the forecasts that are for a period of more than 10 years. These forecasts are carried to determine the growth of population, development of the economy, political situation in a country, and changes in international trade in future. Among the aforementioned forecasts, short period forecast deals with deviation in long period forecast. Therefore, short period forecasts are more accurate than long period forecasts.

4. Level of Forecasts:
Influences demand forecasting to a larger extent. A demand forecast can be carried at three levels, namely, macro level, industry level, and firm level. At macro level, forecasts are undertaken for general economic conditions, such as industrial production and allocation of national income. At the industry level, forecasts are prepared by trade associations and based on the statistical data.

Moreover, at the industry level, forecasts deal with products whose sales are dependent on the specific policy of a particular industry. On the other hand, at the firm level, forecasts are done to estimate the demand of those products whose sales depends on the specific policy of a particular firm. A firm considers various factors, such as changes in income, consumer‘s tastes and preferences, technology, and competitive strategies, while forecasting demand for its products.

5. Nature of Forecasts:
Constitutes an important factor that affects demand forecasting. A forecast can be specific or general. A general forecast provides a global picture of business environment, while a specific forecast provides an insight into the business environment in which an organization operates. Generally, organizations opt for both the forecasts together because over-generalization restricts accurate estimation of demand and too specific information provides an inadequate basis for planning and execution.

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