Internal forecast includes all those that are related to the operation of a particular enterprise such as sales group, production group, and financial group. It is usually prepared by a company’s research wing or by outside consultants. External forecast deals with trends in general business. (i) External or national group of forecast, and (ii) Internal or company group forecast. There are basically two types of forecast, viz.,: Planning of a new unit must start with an analysis of the long term demand potential of the products of the firm. It helps in saving the wastages in material, man hours, machine time and capacity. It is one which provides information for major strategic decisions. Long term forecasts are helpful in suitable capital planning. Such a forecast helps in preparing suitable sales policy. Which period is chosen depends upon the nature of business.
Therefore, demand forecasting is a projection of firm’s expected level of sales based on a chosen marketing plan and environment. In the words of Cundiff and Still, “Demand forecasting is an estimate of sales during a specified future period which is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces”. The more realistic the forecasts, the more effective decisions can be taken for tomorrow. Forecasts can be both physical as well as financial in nature. Since future is uncertain, no forecast can be percent correct. It is an objective assessment of future course of action. The value of future sales is crucial as it affects costs profits, so the prediction of future sales is the logical starting point of all business planning.Ī forecast is a prediction or estimation of future situation. It is becoming increasingly important and necessary for business to predict their future prospects in terms of sales, cost and profits.
Management would be a simple matter if business was not in a continual state of change, the pace of which has quickened in recent years. The sales forecast is particularly important as it is the foundation upon which all company plans are built in terms of markets and revenue.