How to Forecast for a Business

A well-run business doesn’t run on luck, they are constantly working on its business plan
and business forecasting. Every decision and process is based on information that they
have obtained from their forecasting and tools, along with planning and market research.
Companies that focus their energy on predicting market trends are able to set up
successful strategies in the long term and don’t need to take quick online loans out.

Some businesses are able to forecast using sophisticated statistical methods and others
rely on experience and past information, then there are those that follow their gut. One
thing that does remain is that business forecasting is essential to a business success.

Understanding Business Forecasting

Business forecasting is the process to predict market conditions moving forward, which is
done by using intelligence tools and forecasting methods, which analyse historical data. It
can be qualitative or quantitative with qualitative business forecasting relying on subject
matter and market research and quantitative forecasting relying on data analysis.

Quantitative forecasting is accurate past information that helps predict future events. This
method pulls data that allows a probably outcome. The data used includes in house data,
such as sales and professional data, identifying different variables to establish cause and
help forecast for the future.

Qualitative forecasting is surrounded by the judgement and opinion of experts and
consumers. This is useful when the business does not have enough historical data to
make any relevant conclusions. Experts piece bits of data together to aid in future
forecasting. This form of business forecasting is useful when there isn’t much information
on the future of your particular industry and you cannot rely on historical data alone. It is
useful for innovative industries where there are new products constantly entering the
market.

Why Is Business Forecasting Important?

Business forecasting is essential to any business when the future is uncertain or when the
business needs to make an important strategic decision. The more probably outcome the
business focuses on, the higher the chances of success as they move forward.
How to Forecast for a Business

The first step in forecasting for a business is to identify the problem or question that needs
to be solved. This may be estimating the demand of a product in the next quarter, for
example.

Next you need to identify what variables need to be taken into consideration. In the event
of estimating a product demand, you would look at previous sales records, including
capacity, production and demand.

Choose a forecasting method, based on your forecasting goals. This is a qualitative or
quantitative, you can also used a mixed approach. Based on the historical data, you can
estimate your future business performance. Documenting your findings and improving the
business forecasting process can improve your business success.

Methods of Business Forecasting

The two main types of business forecasting is qualitative and quantitative. The most
common methods of business forecasting includes:

• The Delphi Method – a qualitative forecasting method used by gathering subject
  experts and getting their opinions. None of the experts knows the others thoughts,
  which provides an objective solution, enabling you to identify any division,
  consensus or patterns.
• Market research techniques are used to evaluate customers behaviour and their
  response to services and products. Some market research methods analyse
  quantitative data, such as digital marketing, some analyse qualitative data, such as
  customer interviews and product testing.
• Trend analysis methods relies on a forecaster who analyses the historical data in
  order to identify a trend. This requires statistical analysis with recent data having
  more weight to reflect the state of the business.
• An average approach relies on future predictions being the same as past data. This
  is quantitative forecasting used when you need to predict unknown values,
  calculating past averages and assuming the future will closely resemble the data
  collected.
• Naive approach is cost effective and used against sophisticated methods. It relies
  on time series data where the forecasts are equal to the last observed values. This
  is useful where past patterns are likely to be the same in the future. The most
  recent data proves to be informative and assist with effective forecasting.