Purpose of a Forecast

small_2620032966According to Merriam-Webster’s on-line dictionary a forecast means, “to calculate or predict (some future event or condition) usually as a result of study and analysis of available pertinent data; especially:  to predict (weather conditions) on the basis of correlated meteorological observations.”  We all know the importance of weather forecasts.  Although not always one hundred percent accurate, timely forecasts of devastating tornadoes and hurricanes have saved countless lives by warning people ahead of time of potential destruction and enabling them to consider all options for survival, in the present,  before the storms arrive.

The principles of forecasting especially apply to a business.  Forecasting is forward looking.  It is a necessary and vital task for the following reasons:

  • Forces strategic thinking on the company leaders.
  • Results in the development of a well thought- out- plan and strategy in all key areas.
  • Enables management to react ahead of important business situations and events.
  • Helps prepare for the worst possible scenarios and take advantage of future opportunities.
  • Provides options.

Every business owner and their key people should constantly be forecasting at a minimum, sales, expenses, profits, cash flow, capital additions and people needs.

Peter Drucker said, “The future requires decisions-now.  It imposes risk-now.  It requires action-now.  It demands allocation of resources, and above all, of human resources-now.  It requires work-now.  Long-range planning should prevent managers from uncritically extending present trends into the future, from assuming that today’s products, services, markets, and technologies will be the products, services, markets, and technologies of tomorrow, and , above all, from dedicating their resources and energies to the defense of yesterday.  Everything that is “planned” becomes immediate work and commitment (Drucker, p.343).”

An identifying mark of the superior business owner is that of a strategic thinker and planner, one who takes the time to forecast.

*Drucker, Peter F., (2004), The Daily Drucker

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