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What role does forecasting play in the strategic planning process?

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What role does forecasting play in the strategic planning process? What are some aspects of forecasting you must consider in your plan? Why? Do you believe forecasting is reliable? Why or why not? What might an alternative approach or method be?

Muhammad Jawaad Ahmed :

Planning is done by making budgets. The starting point of budgeting or planning is the forecasting. Forecasting and budgeting are estimates for forthcoming period activities in quantitative and financial terms. Forecasting is estimate not necessarily achievable, while budgeting is based on achievable estimates. However the forecasting is the starting point without which the budgeting is not possible. In planning process it is necessary that the difference should be achievable and not achievable must be solved, otherwise the planning process will be in vain. Further in whatever department you are working either marketing or production you have to convert your quantitative data in financial term to prepare budget and complete planning process. To forecast for future company uses the past data and then make the necessary adjustment in past figures. For example, the marketing department found that for last past five years there is rising trend of sales in quantity by 5%, therefore it may be expected that the next year quantity sold will be 5% higher, if the total quantity sold for the last year was 100000 units, it means that the next year the quantity sold will be 105000. To make sales budget in dollars, one should know the quantity to be sold and at what price it is going to be sold. If it is estimated that the selling price will have the impact of inflation of 10% in coming year and current price is $20, it means that the expected selling price for the coming year will be $22, which is 10% higher than previous year. Now the sales budget in dollars will be 105000 x 22 = $2310000. If the company can achieve this sales target, it means that the budget for the next coming year will be for 105000 and all departments will work for 105000. And if company does not have enough capacity to produce 100000 units, then it must be decided by top management how many units to be produced in future, so the budget may be prepared.




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