Strategic Importance of Forecasting and Keys to better Forecasting

Since this week we are learning about forecasting so I read an article about it. Forecasting is extremely important for any business from a strategy point of view because having inventory (whether physical or product) at the right time is essential for making profits. A business must buy right amount of raw materials to produce right amount of goods for consumers. If this is not the case then either the business will not be able to serve the customer due to shortage or will have to hold extra products and incur storage costs.

Many companies do not understand the strategic importance of forecasting. Having the right resources available at the right time is essential for efficient functioning. In today’s tough business environment where businesses are trying to save costs it is needed that every penny is saved. Forecasting is one way to save costs as from forecasting only companies can guess the future demand and can manage their resource accordingly. Any mismanagement in forecasting can lead to great loss in both small and large businesses.

All large companies use forecasting when formulating their strategy because without it no decisions can be made. It is true that no one can predict the future accurately but forecasting can give a general idea about future on which present decisions can be made. Forecasting is therefore an important strategic tool for all businesses.

In the article ‘7 keys to better forecasting’ the authors have stressed the importance of forecasting and have given 7 suggestions to make better forecasting decisions (Moon, et al. 45). The article also argues that better forecasting can increase the financial health of a firm significantly (44).

The first key to better forecasting is to understand what is forecasting. The article suggests that forecasting should not be viewed as a computer program but as a management process. The second key to better forecasting is to forecast demand and then plan supply. Many firms restrict their supply forecasts to their capacity. This is not a good practice according to the article as first firms should forecast demand of the product and then plan supply.

The third key is to communicate, cooperate, and collaborate because forecasting involves input from all levels of organization. The fourth key is to not waste time on redundant activities. There are some activities that are performed by many departments and this should not happen because valuable time and effort is wasted on these activities and they do not add value to the firm.

The fifth key to better forecasting is to use tools of forecasting wisely (Moon, et al. 45). Some companies rely on qualitative tools too much and ignore quantitative tools of forecasting. A balance should be maintained between the two tools in order to predict future demand better. The sixth key is to make forecasting important by making people who are involved responsible for their decisions. The seventh and the last key to better forecasting as discussed by the article is to measure performance, feedbacks, and standards (Moon, et al. 45). All these suggestions can improve the forecasting in a firm.

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Works Cited
Moon, M. A., Mentzer, J. T., Smith, C. D., & Garver, M. S. Seven keys to better forecasting. Business Horizons, 44–52, (1998)

2 thoughts on “Strategic Importance of Forecasting and Keys to better Forecasting

  1. Forecasting is an important strategy which can either leading people to success or fail people to the trough. In the statements JingJing narrates, we can see the professional factors forecasting consists and how it works during the planning of business. One of the most famous forecasting is the price of oil, which has risen rapidly during last several years and still has the trendy of rising. We can see that people are more willing to take public transportation nowadays than past years. Also, some vehicle companies like BMW are having electric car models coming up to avoid the needs of buying oil. There are some other examples such as the crash of real estate and the went up price of retailing food, so that we can concluded that forecasting is an essential key for us to analysis when we are planning to do the investment. Since forecasting of business is difficult to predicted, we should rely on management that collect the effective data and do the calculations in order to keep the information updating.

  2. This topic is quite correlated with the view that I presented on the theme of the 2012 London Olympics. Indeed, Project Management and one of its most important elements – the Logistics System- need to develop technical methods for obtaining reliable forecasts and quite close to reality. That is, forecasts that facilitate decision making to all managers at all levels.
    Unfortunately this is not easy. There are several elements that hinder the development of forecasts of having low margin of error. Here are some of them. Perhaps the biggest drawback is the level of uncertainty of the variable you want to predict. The complexity of uncertainty in a forecast is influenced by situations very difficult to prevent. For example, in the case of the forthcoming Olympic Games in London, it is almost impossible to predict the behavior of millions of fans who possibly remain in the sporting centers, but also on TV, from every country in the hemisphere. Therefore, if there are actions that undermine the smooth running of the Games, may not have been predicted all the supplies needed to meet these irregular situations, especially if these are of great magnitude. For example, imagine that in a competition of the Olympic Games lost the competitor or competitors of a given country, whose people are in disagreement with this result. And they disagree because they believe that the arbitrators made ​​decisions that favored the opponent in the competition. As a result, supporters of the losing country could run serious vandalism that would work against the smooth running of the Olympic Games.
    It may be a little strange that these situations are mentioned when it comes to forecasting. But, it is that the forecasts do not refer only to the projection of sales, income, expenditure, and financial topics. The forecasts are also felt in the social, economic, political, technological and environmental. Hence, the degree of uncertainty is one of the major limitations in forecasting.

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