You are on page 1of 4

Forecasting is considered to be an important component in making rational judgments.

Development of accurate forecasts requires understanding of the procedures and capability to analyze
and evaluate the changing business conditions (Kurzak, 2012). Having an increasingly significant role
in management activities, forecasting eminently became an efficient method for business entities to
accommodate and adjust to social, technological and economic changes (Pearce, 1997).

Forecasting as a prerequisite to making business decisions is integral in every entity,

regardless of the nature of said entity-- manufacturing, merchandising or service businesses (Kurzak,
2012). The importance of the sales forecast encompasses several financial management activities
including cash flow estimation, cash budgeting, capital budgeting, capital structure analysis, financial
planning and valuation (Burns & Walker, 2001).

According to Geurts, Lawrence and Guerard (1994), almost every area of business operations
is affected by sales forecasting since it is serves as the basis for budget and control and assessment
of administration curricula. They further emphasized that “forecasting integrates all parts of the
business with the market, which is the ultimate determinant of the firm’s survival and success.”

The significance of such management activity is evident in its role to measure cash flows
including productions costs, capital expenditures, interest income and other sources and uses of
financial resources directly or indirectly related to sales (Burns & Walker, 2001). Its effect has
prominent intensity that failure to formulate accurate and reliable forecasts may result to serious
consequences and losses (Brigham & Gapenski, 1996).

Entities today face a growing challenge as they strive to progress towards better performances
and maintaining their competitive positions while coping with prompt changes in the economy,
commodity prices and financial markets (Dhir & Pal Singh Toor, 2011). Thus, there is a need to
cultivate a forecasting model that would successfully integrate these changes in the efforts of the
business entity to adjust to the rapidly changing market and generate maximum profit.

With the advent of technology, financial engineers figured that there was a need to develop
automated forecasting systems. In the study of Pearce (1997), he mentioned that man can expect
uncertainty about the future to increase rather than decrease since we are more adept to creating
technological advancements than in expecting and adjusting to the social modifications that must be
done to accommodate such change in technology. Correspondingly, the need to forecast better and
to anticipate the effects of changes will increase (Pearce, 1997).

Results of the study indicated that automated forecasting does increase forecasting accuracy
but with drawbacks in certain areas such as maintenance and protection of the system and database.
An interesting was that there were no statistical difference between the forecasts generated by the

system running in totally automatic mode and the company’s current forecasting system where human
intervention took place.

Pearce (1997) further concluded that it was best for business entities to maintain human
interventions in the event that the entity decide to use automated forecasting systems. There were
multiple instances in the study where human input—either in the form of specifying an alternative
forecasting method or altering the forecast values or both— appeared to have the effect of
circumventing large absolute forecast errors. This effect, if repeated in succeeding practice, is both
interesting and important because it could reduce costs and increase service levels to customers.

In the study of Rombe (2018), he stated that forecasting is required in many situations such
as deciding whether to build another power plant in the next five years forecast of future demand,
scheduling staff in a call center requires forecast of call volumes, stocking an inventory forecast to
stock requirements, telecommunication routing traffic forecasts a few minutes ahead, and entering
new market require market forecasts. Hyndman and Athanasopoulos (2013) supported Rombe’s
argument and added that whatever the circumstances or time horizons involved, forecasting is an
important aid in an effective and efficient planning.

Additionally, when appropriate forecasting methods are applied, more positive results to
business growth can procure. Parameters such as business growth, demand and capacity forecast
are essential in any business planning and consequently business growth forecasting. Forecasting is
of a great value to any business and it can determine business future growth in any market if
appropriate methods are applied in particular case and environment (Rombe, 2018).

Rombe further concluded that business growth forecasting can be attained adequately by
application of proper forecasting methods, and it is also evident that judgments are essential in this
respect ,though systematic methods are also paramount in particular situations.

Forecasting is the art of projecting future events and it normally involves taking historical data
and projecting them into the future application of mathematical model and in some cases adjusted by
a manger‘s healthy judgment (Hezier and Render, 2011). It is described as “a common statistical task
in business, where it helps informed decisions about scheduling of production, transportation and
personnel, and provides a guide to long –term strategic planning.”

Hezier and Render added that forecasting is all about predicting the future as accurately as
possible, given all the information available including historical data and knowledge of any future
events that might impact the forecasts.

Accordingly, Rob (2009) addressed that in most business, the responsibilities for preparing
the demand forecast lies with the marketing or sales managers, rather than operations. So it is

important to harness, marketing and operations managers’ position, since forecasts are also major
responsibility for operation managers; otherwise business will be in dilemma between the two

He compared it in reality that an organization needs to develop a forecasting system involving

several approaches to predicting uncertain events. Such forecasting systems require the development
of expertise in identifying forecasting problems, applying a range of forecasting methods, selecting
appropriate methods for each problem, and evaluating and refining forecasting methods overtime. It
is also important to have strong organizational support for the use of formal forecasting methods if
they are to be used successfully.

These statements were supported by the study of Chambers, et al. (2017) who presented that
all forecast whether financial forecast per se or about specifics of business, like sales growth or
projection of economy in totality, are just informed guesses. Generally most forecast falls under two
overarching approaches though there are many of them and they are Qualitative and quantitative. In
addition, they stated that Qualitative method is mainly use for forecasting short-range predication and
it can be sought of as expert driven whereas quantitative methods are concerned with data and avoid
the fickleness of people underlying the numbers.

Hence, forecasting bears a principal importance to the business both in management and
operations. The literature presented supports the claim that forecasting, as a major financial
management activity, has a significant role in shaping the success of a business entity.


Brigham, E. F., & Gapenski, L. C. (1996). Intermediate financial management, -International edition.
New York, NY: Dryden Press.

Burns, R., & Walker, J. (2001). The Sales Forecast and Financial Management in the Small
Manufacturing Firm. The Journal of Entrepreneurial Finance, 6(1), 115-128.

Chambers. C. John et al (2017) How to choose Right Forecasting Techniques, Harvard Business
Review (Harvard Business Publishing) PP1-36.

Claes F, et al (2010) The Effect of Consumers Satisfaction on Consumers spending Growth. Journal
of Marketing Research: February 2010, Vol. 47, No. 1, PP28-35

Geurts, M., Lawrence, K. D., & Guerard, J. (1994). Advances in business management forecasting:
forecasting sales. Volume 1. New York, NY: JAI Press.

Heizer, J. and Render B. (2011). Principles of operations Management 8th Edition (USA Prentice

Hyndman.J.Rob, Athanasopoulos. G. (2013) Forecasting: Principles and Practices.

H.J.Rob (2009) Business forecasting methods, vol.1.

Kurzak, L. (2012). Importance of forecasting in enterprise management. Advanced Logistic systems,

6(1), 173-182.

Pal Singh Toor, T., & Dhir, T. (2011). Benefits of integrated business planning, forecasting, and
process management. Business Strategy Series, 12(6), 275-288.

Pearce, S. L. (1997). Comparing an expert system vs traditional approach to forecasting item

demand in a distribution inventory environment.

Polanski Arnold et al (2017) Forecasting Multi-dimensional risk at short and long horizon.
International Journal of Forecasting, Volume 33, issue 4.Octomber –December 2017 Pages
958 969.

Rombe, M. Michael Lawrence. (2018). The impact of Effective Forecasting on Business Growth: A
case of Business in Juba Market. International Journal on Economics, Business and
Management Research, Vol. 2, No 01.