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Managers use forecasts for budgeting purposes.

A forecast aids in determining volume of


production, inventory needs, labor hours required,
cash requirements, and financing needs.

A variety of forecasting methods are available.

However, consideration has to be given to cost,


preparation time, accuracy, and time period.

The manager must understand clearly the


assumptions on which a particular forecast
method is based to obtain maximum benefit.

         
            
   

         


   

          


       
       
         
      
ðhy Use Forecasts
Ä Marketing managers use sales
forecasts to determine optimal sales
force allocations, set sales goals, and
plan promotions and advertising
Ä roduction planners need forecasts in
order to: schedule production
activities, order materials, establish
inventory levels and plan shipments

Gther areas that need forecasts include
material requirements (purchasing and
procurement), labor scheduling, equipment
purchases, maintenance requirements, and
plant capacity planning

In planning for capital investments,


predictions about future economic activity
are required so that returns or cash inflows
accruing from the investment may be
estimated
Ä The personnel department requires a
number of forecasts in planning for human
resources
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Ä Managers of nonprofit institutions and public
administrators also must make forecasts for
budgeting purposes
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Forecasting Methods

There are basically two approaches to


forecasting, qualitative and
quantitative!

[1]. Qualitative approach forecasts


based on judgment and opinion:

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elphi Method

This is a group technique in which a panel of


experts is questioned individually about their
perceptions of future events

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Quantitative approach

[a]. Forecasts based on historical data

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[b]. Associative (causal) forecasts

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