forecasting

Definition

Planning tool which helps management in its attempts to cope with the uncertainty of the future. It starts with certain assumptions based on the management's experience, knowledge, and judgment. These estimates are projected into the coming months or years using one or more techniques such as Box-Jenkins models, Delphi method, exponential smoothing, moving averages, regression analysis, and trend projection. Since any error in the assumptions will result in a similar or magnified error in forecasting, the technique of sensitivity analysis is used which assigns a range of values to the uncertain factors (variables). A forecast (which indicates what 'might' happen) should not be confused with a budget (which shows what 'ought' to happen). See also backcasting.