ESSENTIAL OF FORECASTING SYSTEM:

There are different methods for estimating future demands. These

methods differ in costs, flexibility, the skills required and the degree of
sophistication.

A good forecasting method should possess the following five

characteristics:

1. Plausibility: Management must be able to understand and have

confidence in the techniques used. Understanding is important for
proper interpretation of the results
2. Simplicity and case of comprehension: Elaborate mathematical and
econometric procedures may be judged less desirable if management
does not really understand what the forecaster is doing and fails to
understand the procedure
3. Economy: The cost of forecasting has to be weighed against the
importance of the forecast to the operations of the firm. There is no
point in pursuing very high levels of accuracy at great expenses if the
forecast is of no importance to the firm.
4. Availability: the technique employed should be able to produce
meaningful results quickly. If the technique takes a long time it may
not be of much help to the management.
5. Accuracy: It is necessary to check the accuracy of past forecasts against
present performance and of present forecast against future
performance. Some comparison of the model with what actually
happens and of the assumptions with what is borne out in practice is
most desirable.