What is forecasting?
Forecasting is predicting the uncertainties of business trends to help managers make better decisions in their business plan. Forecasting normally involves the study of historical data in order to seek for any trends or patterns so that can be extracted to produce potential outcomes.

The need for forecasting
Since all organizations operate in an atmosphere of uncertainty yet decisions still have to be made in order for the organization to remain optional. Educated guesses about the future are more valuable than uneducated guesses. It is also important because of the constant changes in technology, government involvement in the economy as well as political stability, it is ideal to predict the accurate macro and micro changes survive and grow in a dynamic and uncertain world.

Types of Forecasting
- A forecasting technique that isn’t based on numbers but on expert opinions and intuition. It is typically used when no data is available.
- Time Series analysis data by period of time in order to determine if trends or patterns exist.
  • Causal Relationship Forecasting
- Forecasting by relating demand to another underlying factor besides time.

Choosing forecasting techniques
  • The manager must decide whether he/she needs a summary forecast or detailed forecast.
  • Decide if the forecast is for short-term or for long-term.
  • Decide if quantitative or qualitative techniques better suit the problem at hand so the manager can be put in a position to make a better decision.
  • The manager must also choose a forecasting technique, which is accurate, timely, and cost effective.

Forecasting steps
  • Formulate problem and collect data
  • Verify and clean the data
  • Model building and evaluation
  • Implement data to the model to produce actual forecasts
  • Evaluate forecasts to see if they are closer to the actual event occurred as predicted and measure level of accuracy or inaccuracy of data

  • The purpose of a forecasting is to reduce uncertainty within which managerial decisions must be made.
  • The forecast must be technically correct and produce forecasts accurate enough to meet the firms’ needs.
  • The forecasting procedure and its results must be presented in an effective manner for management so that the forecasts can be used in decision-making process to aid the firm.

Davis, Mark M., Aguilano, Nicholas J, Chase, Richard B., Fundamentals of Operations Management, Irwin/McGraw-Hill; 4 edition (July 2002)