What is Forecasting? This is an explanation and some of the methods

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What is Forecasting? This is an explanation and some of the methods

What is Forecasting This is an explanation and some of the methods 1

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 Method

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.

Quantitative Forecasting

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).

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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.

Qualitative Forecasting

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.

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