Forecasts play a vital role in determining material needs that constitute inventories and in establishing production plans. In this unit, you have studied the importance of demand forecasting in business. Forecasting provides a basis for coordination of plans for activities in several parts of a particular company. It provides very important information to the company. Therefore, proper care should be exercised while estimating forecast value. Developing a forecasting system is not simple. It should be done because forecasting is fundamental to any planning effort.
Forecasting is the basis of corporate long run planning. In the functional areas of finance and accounting, forecasts provide the basis for budgetary planning and cost control. Production and operations personnel use forecasts to make periodic decisions involving process selection, capacity planning, facility layout, etc.
Marketing based on sales forecasting to plan new products and makes key decisions. Forecast error is the difference between the forecast value and what actually occurred. Error can come from a variety of sources. One common source that several forecasters are unaware of its projecting past trends into the future. Errors can be biass error or random errors. Standard error, mean squared error and mean absolute deviation (MAD) are the terms utilized to describe the degree of error. Several commercial forecasting programs are now available. Most are available for micro computers and use shared network databases. You may use a spreadsheet such as Microsoft Excel to create a forecasting program on a PC. Depending on one's knowledge of the spreadsheet, a simple program can be written down.