Methods of forecasting, Applied Statistics

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Methods of Forecasting

Various techniques which are generally used in business forecasting are as under:

1.      Forecasting  through the opinion of heads  of department

2.      Forecasting  through  the opinion  of workers

3.      Marker Research

4.      Expert Opinion

5.      Index Numbers,

6.       Time Series Analysis

7.      Expert polation,

8.      Regression Analysis

1.      Opinion of Heads of Department:  Since the departmental heads are fully aware of problems of the department, they may forecast about the likely requirements to overcome the problems related to their respective departments. They may analyse their problems   on the basis of past historical records and their own expert knowledge. For example sales manager can better forecast about the future sales activities. Similarly, other heads of the department shall also forecast the figures for next year.

2.      Opinion of Workers  or Jobmen : In this  technique  forecasting  is done  by those  personnel who  have  longer and closer link  with  the problem .It is done  by the personnel of  each concerned department   and after  their  scrutiny analysis and interpretation ,  may be approved  by the  head of the department. Thus that becomes the forecast for that department.

3.       Market Research:  Big business enterprises adopt this technique, such organisations have a separate department for carrying this task, known as market research department.   Scientific techniques may also be adopted by this department.  The department prepares forecasts by studying nature, taste, demand, fashion etc.

4.      Expert opinion   Delphi Method: In this method the opinion is sought from expert about particular product. It's all experts express their opinion in favour, it is accepted. In case all of them do not agree upon one thing, the meeting will be called again and every aspect of it will be discussed. In this manner, the gap between diversified opinions can be reduced.

5.      Index Numbers : These  are regarded as the barometers of business  activity .They  indicate the periodic changes taking place in different economic  phenomena such as gross national product, pries  cost of living  wages   etc. The important  indices  used  for this purpose  are those  showing changes  in prices  industrial  and agricultural  output, employment, bank deposits,  currency in   circulation , stock  and share prices etc. Index numbers are constructed for general business activity which tells the general conditions of trade and industry. These can be used for business forecasting also.

6.       Time Series Analysis : The  method  of forecasting  involves determination  of secular  trend and seasonal variation  in a time  series  and then projecting  them  in future, In  the chapter  of analysis  of time  series we have  studied  how  different components are separated  and studied individually. Using time series data forecasts may be made.

1.      On  the basis  of leading  series   by taking  published  series  which has  historically  preceded  the series  which is to be forecasted.

2.      On the basis of present of aggregate activity which can be computed for a firm for a period of several years. This percent of aggregate activity figures can be obtained and plotted   by mean of least squares trend line. These plotted points may be extended to obtain trend percentage for some future period.

7. Extrapolation:  It refers to projecting a value at a future point of time from the data relating to some variable for a certain period. This method can give most likely estimates based on certain assumptions.

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