Sunday, 3 January 2016

Forecasting - Role in Decision Making

Forecasting vs. Decision Making

Virtually every organization, public or private, operates in an uncertain and dynamic environment with imperfect knowledge of the future. Forecasting is an integral part of the planning and control system, and organizations need a forecasting procedure that allows them to predict the future effectively and in a timely fashion. Forecasting can be used as a tool to guide business decisions, even though some level of uncertainty may still exist. It can reduce the range of uncertainty surrounding a business decision

Applications of Forecasting in Business

Forecasting is a powerful tool that can be used in every functional area of business.

1. Production managers use forecasting to guide their production strategy and inventory control
2. Trends and availability of material, labor, and plant capacity play a critical role in the production process
3. Reliable forecasts about the market size and characteristics are used in making choices on marketing strategy and advertising plans and expenditures
4. Marketers use both qualitative and quantitative approaches in making their forecasts
5. Service sector industries such as financial institutions, airlines, hotels, hospitals, sport and other entertainment organizations all can benefit from good forecasts
6. Financial forecasting allows the financial manager to anticipate events before they occur, particularly the need for raising funds externally
7. Use of forecasts in human resource departments is also critical when making decisions regarding the total number of employees a firm needs

Forecasting as a tool in planning has received a great deal of attention in recent decades. Today, firms have a wide range of forecasting methodologies at their disposal ranging from intuitive forecasting to highly sophisticated quantitative methods. 

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