Forecasting in English means forecasting: weather forecasting, budget forecasting, etc. So in business, what is forecasting and are there different forecasting methods in business? Let’s find out with Joboko in the article below.
CONTENTS: What is I. Forecasting? II. The role of forecasting in business III. The most used forecasting methods IV. Steps to make forecasting in business
In business operations, CEOs of businesses often have to make forecasts about what can happen in the future in order to prepare and allocate human, financial, etc. Such work is called is Forecasting. So what are the methods of forecasting and what are the steps to do it? Let’s find out in the article below.
How is forecasting used in businesses?
What is I. Forecasting?
Forecasting is the use of information and data available in the past and present to make forecasts about possible trends in the future. This is especially important in businesses operating in order to effectively allocate human, financial or planning resources for the upcoming period. And the CEO or business owner is often the person responsible for making these forecasts. There are three types of forecasting commonly used in businesses to forecast the future:
1. General Business Forecasting
Forecasting can be used to gauge market conditions and the value of a potential market. Businesses often try to estimate future sales, costs, profits, and even liabilities. They will also attempt to measure and evaluate new economic trends and seek to position themselves in the face of their development. Forecasting the general business situation can be based on collected data or intuition, qualitative analysis of professionals.
Viewing: What is Forecast
2. Sales & Marketing Forecasting
Sales and marketing are the two main sources of business revenue. If the sales team generates sales by connecting with potential customers, the role of marketing is to attract these customers with attractive advertising. Sales and marketing forecasting is essential for allocating human resources and internal budgets.
3. Capital Forecasting
Budget forecasting can simply be understood as the financial planning of a business. Businesses need to forecast budgets to forecast future revenue (based on sales, marketing and other revenue), optimize investments, and ensure payment of due debts. term. Budget forecasting will help businesses optimize, allocate human resources and manage cash flow effectively.
In what situations is forecasting used?
II. The role of forecasting in business
As a business grows and invests in product/service advertising, forecasting plays an important role in ensuring all resources are properly allocated. The ability to make accurate forecasts will bring great benefits to businesses. Among them are:
1. Ensure efficient resource allocation
Businesses need to know how much sales they can generate in a given period of time, both to ensure a stable business situation, and to meet customer expectations about quantity and quality of products. If you work for an equipment manufacturing company, accurate forecasting will help determine the number of products that can be sold on the market, avoiding long-term inventory. If your company is in the service business, accurate forecasting will help ensure the full number of employees needed to provide services to customers.
2. Ensure effective use of budget
Accurate sales and marketing forecasts will help you determine how your sales will change or grow over a certain period of time. From there, each business can determine the appropriate level of budget expenditure as well as the most appropriate use of cash flow.
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3. Help capture many business opportunities
Businesses not only advertise products to new customers, they also have to market to existing customers. Forecasting revenue from both these current and future customers helps businesses determine customer life-long value (CLV) – an effective method for measuring marketing ROI and invest effects. Understanding the shopping habits of customers through the customer life cycle will help companies seize many new business opportunities. Moreover, thanks to forecasting method, the implementation of marketing campaigns catching up with the trend is carried out smoothly, thereby can adjust the size and scope of business accordingly. If you are interested in the latest Digital Marketing trends in 2020, don’t miss the article Joboko shares.
III. The most used forecasting methods
There are 3 forecasting methods most used in enterprises. Which method to choose will depend on many different factors, the most important of which is the forecasting model.
1. Qualitative forecasting
Qualitative forecasting is used to predict the future when current data are not clear. Businesses can also apply qualitative forecasting when data is completely unavailable, for example, for an entirely new product or service. Qualitative forecasting is also used to assess the growth of the target market in the absence of all the necessary information to build an accurate forecasting model.
Various forecasting methods in business
2. Quantitative forecasting
Quantitative forecasting is used when the data are complete and clear. For sales and marketing forecasting, businesses that use sales funnels to track metrics can build complex forecasting models based on metrics for each specific stage in the sales cycle. Companies can also use these data to analyze business trends, sales and possible future results.
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3. Casual forecasting model (Casual modeling)
Casual modeling is a sophisticated forecasting method that studies all the factors that can influence the final outcome. Not only complex, casual forecasting models are also continuously improved as businesses work towards building an accurate forecasting model. Forecast is basically a set of assumptions and forecast results may not be the same as actual results. However, the casual forecasting model can overcome this problem by constantly updating and changing based on the newly introduced data.
IV. Steps to make forecasting in business
Business forecasting in enterprises usually takes place according to the following process:
1. Identify the problem. 2. Data collection. 3. Perform preliminary analysis. 4. Select the appropriate forecasting model. 5. Analyze data and make forecasts. 6. Evaluate the effectiveness of the forecasting model.
Forecasting is an extremely important job in business, but many managers tend to ignore it. Especially in small businesses, where the current business has left them feeling almost exhausted. However, making forecasts about the future will help managers and business owners make the most informed decisions to optimize business operations. Forecasting even helps them stay one step ahead to capture better opportunities.