Business Forecasting Methods
Business forecasting methods are used to determine the future development or success of a business in regards to its sales, profits, and expenses. In shaky economic times, it is sometimes difficult to create an accurate business forecast for the coming year. However, some forecasting methods can be used to help businesses in projecting how much of certain products to order, the amount of labor needed, and what areas of the company need more improvement.
Market Research and Delphi Method
Business forecasting typically uses a mix of qualitative and quantitative forecasting strategies. One qualitative method used by many businesses is market research. Market research is basically asking consumers about a new product and determining which of those consumers would actually purchase that new product. This method is implemented through a series of polls to potential customers. This method is sometimes combined with the Delphi Method of asking experts for their opinions of new products or services, and the likelihood of those products selling to potential customers.
Indicator Approach Method
One quantitative approach used by many businesses is the indicator approach. The indicator approach follows an indicator that leads and causes changes in sales even when other factors remain the same. By watching the indicator, businesses can forecast when sales will fluctuate. The indicator approach uses a mathematical formula to determine indicators. This approach may also be combined with another quantitative approach such as the time series method that uses past data to predict future sales. By combining both approaches, a company gets a more accurate prediction.
The Econometric Method
The econometric method uses data from all different indicators over time to see what indicators work together to create a change or fluctuation. This method is very similar to the indicator method, but uses a more scientific and statistical approach by measuring everything, rather than just a few key indicators. In addition, the econometric method can create sets of data together and use this to find custom indicators over time. The econometric method uses elements such as frequency, probability, and statistical inference to create complex and statistical data for a prediction.
Issues with Business Forecasting Methods
Although business forecasting methods can be helpful when developing budgets for businesses, these forecasts can sometimes be wrong. This is due to unplanned events or economic fluctuations that may not be predicted or even included in a forecast. In addition, many experts are now advising businesses to create a backup plan when forecasting methods fail. If there is a plan in place for the best and the worse case scenarios, the business is much more likely to succeed and bounce back when an unexpected event arises.
Business forecasting can be a valuable tool, especially when planning budgets, sales projections and profits for a company for the coming year. However, even when combining forecasting methods, businesses should keep in mind that forecasting is not always right. Having a back up plan for any forecasting method that backfires is an important action step that businesses should take to ensure their success.