Business forecasting is the process of making predictions about the future of a company or industry based on historical and current data.
Business practices such as this one aid in the allocation of resources and the strategic planning of future initiatives as well as activities and expenses. Through forecasting, businesses can allocate their resources better, remain on top of current trends, and boost their prospects of survival and success.
This article will discuss the importance of business forecasting, different types of business forecasting, and how to choose the correct forecasting techniques to scale your business.
Why Is Business Forecasting Important?
To safeguard your company’s future, predictions are used to create better strategies and project plans based on data and research. When making business decisions, managers use data and reasoning rather than intuition or emotions to ensure that their decisions are sound and will benefit their business.
Organizations will get unique, exclusive insights into the anticipated future occurrences, maximize their resources, create product teams and become market leaders using good business forecasting techniques, which we’ll discuss further in the section below.
Types of Business Forecasting
There are several approaches to predict the future of a company or industry. We’ll divide them into two categories based on the type of research they entail:
- Qualitative forecasting
- Quantitative forecasting
Quantitative forecasting includes numbers, statistics, and different formulas to predict possible outcomes. This is a known method in any type of scientific research, and business forecasting is no exception.
Quantitative forecasting is so powerful that big companies use it daily to improve their operations and mitigate risks. You can determine different kinds of connections between different situations, factors, and results by combining and linking data sets. It also includes analyzing the industry’s history to predict possible future outcomes.
If done properly, there’s not a lot of room for error. Quantitative forecasting is also used to calculate a company’s value, sales, and potential earnings so that investors know whether they should invest or not. These are the most common quantitative methods used in business forecasting:
- The indicator method
- Average approach
- Economic modeling
- Time-series approach
Predictions and projections based on expert and consumer opinion constitute qualitative business forecasting. We highly recommend opting for qualitative forecasting when you don’t have enough data or information to make a quantitative forecast. You can use different types of qualitative forecasting techniques to receive actionable advice on positioning yourself in the future.
Qualitative forecasting is the perfect tool if you want to make some short-term predictions. The whole point of qualitative methods is to include the opinions of customers and experts and use them to your advantage. Unlike quantitative forecasting, this method relies more on common sense than on numbers. In business forecasting, some examples of qualitative models include:
- Market research
- Delphi approach
10 Important Steps in Business Forecasting
If you want to use business forecasting in the best way possible, follow these ten steps:
- Research the current state of your company
- Choose a data point you’d like to determine
- Locate important indicators and decide what type of data you need to gather
- Make assumptions that will later be confirmed or rejected through data analysis
- Choose the best forecasting method, or combine a couple of them for optimal results
- Start analyzing the information you have gathered
- Start testing each of the assumptions and see whether it’s valid or not
- Compare your forecasting results with current outcomes
- See if there are any inconsistencies between the results and reality
- Test your forecasting results in different environments
Business forecasting is an integral part of every business’s success. It’s perfect for mitigating risk or any other potential issues that may arise in the future. They help you take a proactive approach to problem-solving and can save you a lot of money and trouble in the long run. Otherwise, you’ll have a much harder time dealing with issues since you didn’t have any time to prepare. You can either outsource forecasting services or hire an in-house team that will be at your disposal at any time.