Finance

The trend of forecasting and estimating the future has always been a difficult one for companies across the globe. The 1930s was the initial period when development into forecasting and predicting models for businesses became relevant for managerial decision making. The use of forecasting and predicting models of consumer demand was the initial area where managers liked to get forecasts for. Ford Motor Company was one of the pioneers in the Western half of the world that used forecasting to make business decisions effective and timely.

Firms employ forecasting techniques in a wide variety of areas for the purpose of decision making. Sales forecasting or rather consumer demand estimation is the most popular area where businesses use some kind of forecasting in order to project their future position. Companies employ a variety of techniques for the estimation of their sales in the future. Linear, self-corrective, aggregate demand forecasting and regression estimations are the most important models that companies use in order to forecast their sales. This area of forecasting is very important for companies due to the fact that this enables a company to formulate their business decisions of expansion, profits and losses. Though forecasting is not an accurate science, it sure gives the business decision makers some direction as to the movement of the future. Businesses engage in forecasting sales in order to project their future positions  on the basis of these projections managers are able to make decisions regarding various business strategies.

Companies like Wal-Mart and K-Mart are perhaps the largest users of forecasting models in the retail stores segment. Sales forecasting enables such retailers to find out whether their position will be better in the future or whether there will be a shortage of liquidity owing to some external reasons. On the basis of the forecasts then, the managers will be able to make decisions ranging from borrowing money to meet the short-term liquidity to perhaps opening a new store to meet the growing demand in that area.

Production companies like Walls rely heavily on forecasting to produce adequate amount of goods. Since the products they produce are fast moving consumer goods that are perishable, it is imperative that there is a good match between the demand and supply of the products. A slight over estimation would mean losses for the company would mean losses while under estimation would mean lost sales. Thus, it is very necessary for fast moving consumer goods companies to estimate their demand curves and thus make appropriate decisions so that they can be competitive and profitable in the marketing place.

On the other hand, companies also need to estimate their costs as time passes. Costing is an important element of business operations. Companies saving on small percentages of their costs are able to get a lot higher increase in the net income. Forecasting future costs is central to making revenue decisions and deciding upon strategic opportunities. Cost estimation is important when it comes to the point in determining the future cash flows and financial position of a company. For companies, it is important to know whether costs will be going up or not further it is important to forecast the percentages by which it will be going up. Financial decision making is completely based upon the net positions of companies in the future. Companies plan for it in advance and thus it is necessary for them to know the market position in future by accurate forecasting and estimation.

Companies across the globe are engaged in a great deal of forecasting and estimation techniques for several domains. The primary purpose of forecasting in sales and cost estimation provides firms with the pre-emptive power of making decisions that would be able to exploit the forecasts. Thus, the need for companies to use forecasting techniques for business decision areas is imperative. Businesses are able to function more effectively and efficiently on the basis of data gathered from forecasting techniques and estimations.