Nature of forecasting

Write an essay on Forecasting and Business Plan.

A new business is going to be started in Leeds, UK. The new business will be the production and sale of the organic food products. In this report, the importance of the different types of forecasting has been analyzed. Before starting the business, what types of forecasting are important and how the forecasting techniques will help to identify the proper operational strategy have been analyzed. In this case, the qualitative forecasting strategy will be used by the business organization (Ord and Fildes 2013). All the short time and long time goal have to be set at the beginning level of the business operations and the forecasting is must for this purpose. After discussing the importance of the forecasting and different types of forecasting techniques, the time horizon that will be sued for this business case have also identified and explained in this report.

Business organizations use the forecasting for analyzing the future scenario of the business operations. The forecasting can be done by two ways. They are quantitative forecasting and qualitative forecasting method (Moore 2015). In the quantitative forecasting method, the various techniques use are: trend analysis, seasonal adjustment analysis, graphical method, life cycle modeling and decomposition. The qualitative forecasting techniques are expert opinion, focus groups, market research and historical analogy.

Forecasting is the important part of the business analysis at the time of planning for a start up business. The forecasting will help the business organization to understand the future demand of the products and services offered by the new business in the target market. At the beginning level of the business, the market penetration is the most vital operations that needed to be carried out by the business organization (Allen 2014). In this purpose, the analysis of the present and future market completion has to be understood by the business organization. In this context, the forecasting of the future operations of the competitors and the customer perception is very important. The main motive of the new business is to gain a high level of profit by selling the products. In this context, the forecasting of the sale and the revenue that may be earned by the sales has to be analyzed (Choi et al. 2014). In order to do that the income stamen forecasting and sale forecasting need to be carried out by the business organization with high level of priority. The forecasting of the require amount for the start up of the business and the different types of business operations and the income from the investment is vital for understand how much can be expected from the new business.

Importance of forecasting

Qualitative forecasting will be used for forecasting the short term and long term forecasting regarding the business operations. The historical analogy is one of the most popular methods of the qualitative forecasting. In this method the sale of new product or service is compared with the sale of the existing product or services. In this forecasting strategy, it is assumed that the sales pattern of the previous products and the new products will be similar. Focus group is another strategy used as the qualitative forecasting (Khasanah et al. 2013). In this strategy, panel of customers are asked for providing their opinions about a particular product or service. Delphi method is a qualitative forecasting method where the conclusions of specialists are joined in a progression of emphases (redundancies). The aftereffects of every cycle are utilized to build up the following, so that merging of the specialists’ conclusions is acquired. This strategy depends on the information and judgment of a little gathering of specialists. In numerous organizations a blend of both chronicled data (dissected by quantitative method) joined with subjective contribution (from gatherings of specialists) is helpful in setting up a more exact figure (Pacheco Martins et al. 2014). Market research can be conducted through the survey or interview with the target customers. Expert opinions can be used for the qualitative forecasting where the experts can give idea about the future market trends and profits by using the experience in the similar business filed (Lu 2014).

In this case, market research will be used as the qualitative forecasting regarding the sales, profit and demand forecasting of the new business of organic food products. In this strategy, the target customers will be interviewed for understanding their opinions regarding the organic food products and the online business of the products. The answers of the customers will be recorded and summarized and analyzed for understanding the different important factors of the business forecasting as discussed in this report (Liu et al. 2013).

The main motive of the income statement forecasting is to project the revenues and the expenses for the business operations over a given time period. The time period may be half of a year or a full year. Other terms used for this are the pro forma income statement and budgeted income statement (Hollensen 2015). In the area of the income statement forecasting, there are three major factors. They are: sales forecasting, cost of goods and operations forecasting and the overhead projection. These factors are discussed in the section given below:

Qualitative forecasting

This forecasting may be seen as the most difficult part for the new business. The goal of this forecasting is to identify the proper way of conducting the business operation to get the desired level of success or profit for the new business. Different types of factors needed to be considered to successfully perform a sales forecasting. The customers’ perception is the most vital fact for the sales forecasting. The demographic factors of the target market are important in this context. The business organization needs to identify the demand of the product they are offering in the area of the business operations (Spawton 2013). In this case, the business organization must identify the perception about the organic foods among the people lived in Leeds and nearby area. Which types of organic foods are preferable by the target customers have to be identified by the organization before selecting the product line (Siguaw and Simpson 2015). As the business will have an online hand also, the organization needs to focus in the technical availability, internet uses and the tendency of the internet shopping among the people of the target area has to be identify for the sales forecasting in the area. In the context of forecasting, the demands of the products in different locations and different times have to be understood (Hollensen 2015). The demand of different types of food products varies over the seasons. Therefore, forecasting about the demands of the food products over the different time period of a year has to be understood while conducting the sales forecasting. The expected amount of products can be understood by the sales forecasting and the amount of revenue can be understood by using the simple formula given below:

[Price per unit × number of units to be sold in the time period = Total revenue]

In order to start a new business, lots of new products need to be bought form the suppliers. The amount of different types of products or raw materials required for the new business need in the time period considered for the forecasting need to be understood by the business organization (Allen 2014). A lot of investment is required for the establishment of the business and recruiting employees for the business operations (McDonald 2013). In this context, the needed amount of money for the management of the human resources over the given time period has to be forecasted for understand the amount money required for the total business operations starting from the very beginning. After analyzing the total forecasted amount of cost needed for the business operations, the total amount of profit can be analyzed by the use of the given simple formula.

An appropriate forecasting strategy

[Total profit = Total revenue – Total cost]

The overhead forecasting is concerned with the extra expense require for the business organizations apart form the core business activities. These costs are also important to be considered in the forecasting for getting more superior result of the forecasted profit from the business operations (Allen 2014). Typical expenses that should be considered in the overhead forecasting are: advertising and promotion, automobile, communication, travelling and accommodation, professional development, mailing and office supplies and others (Khasanah et al. 2013). Considering these expenses gives more superior result of the profit forecasting. The formula of the profit analysis is slight modified with the consideration of the result of the forecasting analysis.

[Total profit = Total revenue – Total cost – Overhead cost]

The time horizon refers to the time period considered for the forecasting. In this case, first the short term forecasting is required for the startup business operations. In this case, the time horizon will be six months. That means half yearly forecasting will be conducted for the startup of the new business. At the very beginning level of a business, the forecasting should not be done over a long time period (Lu 2014). This may be the cause of understanding error and error in decision making. On the other hand short term forecasting gives the ability of understanding the start up costs and the initial level costs require for the business and the amount of sales revenue that may be earned from the sales. The scenario can be dramatically changed after the first six months of the business. Therefore, the six months forecasting will be appropriate for the new business (Hollensen 2015).

Conclusion:

The startup of the new business requires an efficient forecasting regarding the different types of business investments and outputs. Depending on the results of the forecasting process, the operational strategy of the new business of the organic food products will be decided. The qualitative forecasting method will be sued for the business forecasting of the new business of organic food products. In order to start the business and efficiently handle the primary level of business operations, forecasting will be conducted by considering the time period of six months. Market research will be used as the strategy of the qualitative business forecasting regarding the new organic food product business.

References:

Allen, G., 2014. Regression Modeling for Business Forecasting. Foresight: The International Journal of Applied Forecasting, (32), pp.26-33.

Choi, T.M., Hui, C.L., Liu, N., Ng, S.F. and Yu, Y., 2014. Fast fashion sales forecasting with limited data and time. Decision Support Systems, 59, pp.84-92.

Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.

Khasanah, A.U., Lin, W.H. and Kuo, R.J., 2013. Self-Organizing Maps with Support Vector Regression for Sales Forecasting: A Case Study in Fresh Food Data. In Proceedings of the Institute of Industrial Engineers Asian Conference 2013 (pp. 649-656). Springer Singapore.

Liu, N., Ren, S., Choi, T.M., Hui, C.L. and Ng, S.F., 2013. Sales forecasting for fashion retailing service industry: a review. Mathematical Problems in Engineering, 2013.

Lu, C.J., 2014. Sales forecasting of computer products based on variable selection scheme and support vector regression. Neurocomputing, 128, pp.491-499.

McDonald, M.H., 2013. Ten barriers to marketing planning. Journal of Product & Brand Management.

Moore, M.F., 2015. Differentiated Forecast Strategy to Optimize Forecasting Resources. The Journal of Business Forecasting, 34(4), p.41.

Ord, K. and Fildes, R., 2013. Principles of business forecasting. Cengage Learning.

Pacheco Martins, A., Torstensson, H. and Pal, R., 2014. Advanced computing techniques: new tools for fast fashion sales forecasting. In Ambience14 &10i3m, Tampere Hell, Tampere, Finland 7-9 September 2014. Tampere University of Technology, Finland.

Siguaw, J.A. and Simpson, P.M., 2015. A marketing plan for marketing instruction: A satirical look at student comments. In Creating and Delivering Value in Marketing (pp. 129-133). Springer International Publishing.

Spawton, T., 2013. Marketing planning and communications for small winemakers. International Journal of Wine Marketing.