What is Forecasting?
Forecasting is the process of making statements about events whose actual outcomes have not yet been observed. Forecasting can be seen as a planning tool for managers to attempt to cope with the uncertainty of the future. Managers are constantly trying to predict the future, making decisions in the present that will ensure the continued success of their firms. Managers use forecasts for budgeting purposes. A forecast aids in determining volume of production, inventory needs, labor hours required, cash requirements, and financing needs. A variety of forecasting methods are available. However, consideration has to be given to cost, preparation time, accuracy, and time period. The manager must understand clearly the assumptions on which a particular forecast method is based to obtain maximum benefit.

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Types of Forecasts

Short Term Short-range forecasts typically encompass the immediate future and concern the day to day operations of a firm. A short-term forecast usually only covers a period of a few months and can be considered an “operating” forecast. Medium Term Medium-range forecasts typically span a few months up to a year. A forecast of this length can be considered “tactical” in nature. Long Term Long-range forecasts typically encompass a period longer than 1 to 2 years. These forecasts are considered strategic and are generally related to management’s attempt to plan new products or build new facilities.
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Forecasting Methods

Time Series

Regression

Qualitative
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Times Series
Time Series Forecasting is the use of a model to predict future values based on previously observed values. They use historical data to predict future behavior. Time series analysis comprises methods for analyzing time series data in order to extract meaningful statistics and other characteristics of the data. Time series forecasting is the