What is Forecasting? This is an explanation and some of the methods
Forecasting is a term that cannot be separated into business activities. Forecasting is very necessary when you are going to determine the number of products to be produced. Without doing this, you may find it difficult to determine what is the right amount.
If you produce too much, you may suffer losses due to low demand, while if the production quantity is too small and the market demand is very high, you have lost a large potential profit, and very likely will disappoint your customers who don’t get a share.
Definition of Forecasting
Forecasting is a method for planning and controlling production to deal with uncertainty in the future, especially to predict future product demand, or when there are certain celebrations such as Christmas, Ramadan, Eid, New Year, and so on.
Forecasting methods are divided into two, namely qualitative and quantitative methods. The qualitative method is done based on opinion and descriptive analysis, while the quantitative method is carried out based on mathematical calculations.
The following are some of the most commonly used quantitative methods:
1. Time Series
The time series method or time series is a prediction method based on past data on a variable and or past errors that are sequential to time, for example, days, weeks, months, and years. There are two analytical tools to use this time series method, namely smoothing and decomposition.
Smoothing bases its prediction on the principle of average of past errors (Averaging smoothing past errors) by adding the percentage of the errors of the previous prediction (percentage of the errors), which is obtained from the difference between the actual value (actual value) and the predicted value (forecasting value).
Decomposition based its prediction by dividing time series data into several components, such as trends, cycles, seasonality, and random effects; then combine the predictions of these components (except random effect).
2. The Causal Method
The causal prediction method is a causal model between the forecasted demand and other variables that are considered influential. For example, the demand for new clothes may be related to population size, public opinion, gender, local culture, and special months (holidays, Christmas, New Year). Data from these variables are collected and analyzed to determine the validity of the proposed forecasting model. This method is usually used when the causative variables are known.
The qualitative forecasting method is more subjective than the quantitative method. This is because qualitative methods are very much influenced by a person’s background, such as emotions, education, intuition, and so on, so that everyone’s results are likely to be different.
Some of the techniques commonly used in qualitative methods include:
1. Market Survey
This technique is done by asking for opinions from potential consumers about the purchase plan during the observation period. Surveys can be carried out through various means such as questionnaires, in-person interviews, or telephone calls.
2. Opinion from the Executive
This technique is done by asking for opinions from a small group consisting of marketing managers, production managers, engineering managers, financial managers, and logistics managers. The results are then combined with a statistical model.
3. Combined SalesForce
This technique combines predictions from the sales force in each area, which are then combined at the provincial and national levels. You need to consider this technique because these predictions come from people who already know the area firsthand.
This is a discussion of what forecasting is and some of the methods that are often used. For your business to grow, don’t forget to advertise through the Froggy Ads service, you can start by advertising your products so that later you can increase visitors on your online business portal. Froggy Ads is an online advertising service that can help you control all your product campaigns. helps you target your desired marketing target and gives you many options to market your product.