Question

What role does forecasting play in the strategic planning process? What are some aspects of forecasting you must consider in your plan? Why? Do you believe forecasting is reliable? Why or why not? What might an alternative approach or method be?

Answer 1

To understand the role of forecasting, firstly we should understand that what is forecasting. From the word itself, we get an instinct of another similar word ‘prediction’. Forecasting is a process where we predict about future data and then act upon them based on the present and past data. This prediction is subject to analysis of the recent trends. We can figure out the potential events and the upcoming consequences in the future, as per which we can take various precautions and suitable measures. The presentation of this forecasting can include figures in the diagram form of excel, pie charts, bar diagram, trend line charts (mostly used for weather forecast), etc.  

We can easily understand the role of forecasting in strategic planning process, by understanding the steps of forecasting. By knowing the steps of forecasting you will understand why it is important in strategic planning process.

The various steps that are used in developing a forecasting system are explained below:

1. Determining the problem: This is the first and most important step of forecasting i.e. to understand the problem statement of why forecasting is required. Who all are involved in the management department who will take care of this and the further proceedings, the data that will be fetched after forecasting and the past and present data. Also confidentiality needs to be maintained for all the data. The scope of forecasting must be clear to all the team members and the senior most that is the team lead.
2. Collection of information (past and present): The next step would be to collect all possible information of the organisation for the forecast to happen. Also this must be ensured that the data must be correct. Incorrect data will give incorrect output and incorrect forecast which can then loss our organisation. The data can be presented in various form i.e. pie charts or bar diagrams or just figures in an excel sheet.
3. Addition/Reduction of information: This step is performed to fasten the process of the forecasting. The department may gather lots of data with lots of sheets and diagrams. We need to select the correct, reliable, relevant, unbias, consistent and timely data which will save both time and manpower. We must cut and remove the unnecessary data and if required add the relevant data for an effective forecasting.
4. Selection of models and perform forecast: There are various model that can be used for forecasting. The manager must be efficient enough and after a discussion must be able to differentiate and select the best model that must be used for forecasting. There are various models used for forecasting such as subjective forecasting, objective forecasting, time series forecasting, qualitative forecasting, quantitative forecasting, etc. This discretion is maintained at managerial level to understand the correct model suitable for the forecasting and then perform this at a pre defined time period.
5. Comparison of outcome: In this step we need to compare the fetched value, facts and figures from the present data and understand the area of improvement.
6. Follow up: This is the most important step in management studies. If we need to manage a company, follow up action is the most important tool that must be performed. With the help of this we come to know the area of improvements. Work assignation is not a difficult task but keeping an eye on it and timely monitoring it is the most one. This is what is called as follow up action. After forecast, we come to know the areas of improvement. To make this happen, follow up is a must.

There are various aspects of forecasting. The first and the most important of all is that it is concerned with planning of future events. We can predict the probability of any task/risk/gain that would be happening in future events with us or anyone. We make this prediction on the basis of the past and present data. Now we have several methods/techniques of doing this. There are several statistical tools through which this is possible. The most important of all is personal observation which is always expected from the senior most and experienced person of the team and the organisation.

Yes. Forecasting is reliable. This is because it helps us to predict the future and take precautions as per that. The demand and supply of any product can be easily handled and managed when we have predicted it through the past and present data. It would be easy to cope up with the changes in the market and compete with the present competitions. Knowledge of various new technologies can be understood easily if we have already predicted the changes. Formulations of plans become very easy when predictions are already done. One can understand the market demands and competitions and the formulate plans accordingly. Financial needs can be easily prepared if forecasting is done. Immediate arrangements of funds become difficult sometimes. To sum up all, forecasting helps to improve the quality of management in an organisation with in turns helps in proper coordination, cooperation and better utilisation of resources.