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.