Forcasting Case

Introduction

Forecasting could be described as an attempt to foresee the future by examining past data and patterns and applying judgment to projections created form those patterns. It involves predicting the future outcome of various business decisions. This includes, to name a few, the future of the business as a whole, the future of an existing product, and the future of the industry in which the business operates. Business must understand and use forecasting in order to answer important questions such as: How much will the business make? How much will it cost to produce the product or offer the service? How much money will the company need to borrow? When and how the businesses will borrow funds to be repaid? This will help organizations better prepare for the future. Also, this will help the organization make plans that will lead to becoming a financially successful business.

Planning for the future is a critical aspect of managing any organization- weather is a for-profit or non-profit organization. As a matter of fact, the success of any organization is closely tied to how well the management of the organization is able to foresee its future and to develop appropriate strategies to deal with likely future scenarios (Encyclopedia for Business). Intuition, good judgment, and awareness of how well the economy is doing may give the manager an idea of what is likely to happen in the future. Nevertheless, it is not easy to convert a feeling about the future into a precise and useful number. Forecasting methods can help estimate many future aspects of a business operation. Forecasting methods can be classified as either statistical or judgmental (Collier/Evans).

The reason I was interested in doing research in this topic was because working in a non-profit organization forecasting is a crucial factor in our day to day operations and strategic planning because even though success is not measured in profits, efficient use of cash keeps the organization running smoothly. Forecasting helps the organization avoid cash shortfalls that could lead to having to cut back on programs or critically needed services.

Importance

Forecasting is important for several reasons. Financial Forecasting, for instance, enables management to change operations at the right time in order to obtain the greatest benefit. It also helps the company prevent losses by making the proper decisions based on relevant information. Organizations that create high quality and accurate forecasts are able to “see what interventions are required to meet their business performance targets or what key messages may be required to manage shareholder expectations if the targets are missed (or exceeded)!”(Vadasz). Forecasting is also important when a manufacturing company is planning to develop a new product.