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in the present that
will
ensure
the
continued success of their firms. Often a manager
will
use
judgment,
opinion
or
past
experiences to forecast what will occur in the
future.
However,
a
number
of
mathematical methods
are
also
available
to
aid
the
manger in making decisions.
There
is
a
variety
of
forecasting
methods,
the
applicability
of
which
is
dependent on the time
frame of the
forecast, the existence of patterns
in
the
forecast
and the number of variables to which the forecast is related.
In
general,
forecasts
can
be
classified
according
to
three
time
frames:
short
range,
medium range
and
long
range.
Short
range
forecasts
typically
encompass
the
immediate
future and are concerned
with the daily operations of a business firm, such
as
daily
demand
into
the
future.
A
medium range
forecast
typically
encompasses
anywhere
from
one
or
two
months
to
a
year.
A
forecast
of
this
length
is
generally
more closely related to a
yearly production plan and will reflect such items as peaks
and valleys in demand and the necessity to secure additional resources for the
upcoming year. A long range forecast typically encompasses a period longer than one
or two
years. Long range
forecasts
are
related to management’s attempt to plan new
products
for changing
markets, build
new
facilities or secure
long
term
financing. In
general, the further into the future on seeks to predict, the more difficult forecasting
becomes.
Forecasts
often
exhibit
patterns
or
trends.
A
trend
is
along
term
movement
of
the
items
being
forecast.
There
are
instances
when
behavior
exhibits
no
pattern.
These are referred to are irregular movements or variations.
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