Forecasting refers to the consideration of and subsequent response planning for prospective uncertainties that will affect a company’s operations. A company’s recorded history will be reflected in a given forecast, meaning past and present financial or operational data is utilized to make informed, albeit assumptive decisions going forward with a particular action or objective.
Forecasting can be implemented effectively in a variety of ways. When used in evaluating potential investments, forecasting can provide a long-term perspective on a company’s profitability expectations. When forecasting is utilized in budget planning, historical financial data is reviewed and evaluated in order to make sound future projections. Forecasting is also commonly used as a general preventative measure to cope with changes in industry trends and demands.
Subscription to various models and techniques may define forecasting practices within a company and will be specific to management’s preferences.
The difference between judgment forecasting and qualitative forecasting
Though they share the common goals of loss mitigation, growth projection, and trend analysis, not all methods of forecasting are the same. For example, two widely-used types of forecasting techniques include “judgment” forecasting and “qualitative” forecasting.
Qualitative forecasting utilizes expert analysis, as opposed to an analysis that is based on data or computer algorithms (known as “statistical” or “quantitative” forecasting). Judgment forecasting, or “judgmental” forecasting, is one variety of qualitative forecasting.