We have stated earlier that forecasting is an essential element of the planning process. The term forecasting refers to the process of making systematic but tentative appraisal of future conditions and events for a specified period of time- whether for a few months or, a few years ahead. It is a process of predicting relevant future situations which are likely to affect the activities of the organisation. It is an attempt to look ahead and make tentative estimates and projections of the behaviour of relevant variables in the environment.
Since planning is future-oriented, forecasting is a basic ingredient of the planning process. Forecasting provides vital clues to managers on what the future problems and prospects are likely to be for the organisation. By means of forecasting, managers generate information on several dimensions and aspects of the environment, i.e. economic, social, technological, and political. These are directly relevant to the functioning and fortunes of the organisation and which directly influence the planning and other decisions, initiatives and responses of managers. Forecasting is necessary to enable managers to get important inputs for planning and to make informed judgement about the likely impact of the external forces on the organisation’s present and future courses of action. Organisational plans are based on proper and reliable information generated by managers through forecasting and other means.
For a business enterprise, for example, several aspects of future trends should be understood through forecasting. They include: future sales trends of the products and services of the enterprise based on an assessment of future demand, supply, cost and competitive conditions, likely levels and trends of profitability, future technological changes, general economic and industry trends, likely emergence of new products, new processes and new markets, probable changes in population characteristics, their levels of income, life styles and buying patterns and so on.
The individual enterprises may be able to get part of the above information on the basis of forecasts made by other agencies like government, trade associations, academic and research organisations, consultancy firms and so on. But forecasts on internal variables like sales, profits, market share, cost trends etc. have to be made by the enterprise itself.
