Many firms do not understand the strategic importance of forecasting. Having the right resources available at the right time is essential for efficient functioning. In today’s tough business environment where businesses are trying to save costs it is needed that every penny is saved. Forecasting is one way to save costs as from forecasting only companies can guess the future demand and manage their resource accordingly.
Strategic plans are for the long term, usually for three to five years in the future. The plan sets the destination, or goals, for the company and outlines how resources will be used to accomplish those goals and objectives. The planning process is proactive rather than reactive. Management looks at the environment of the company and forecasts technology changes, demographics, the market and competition, to chart a course to reach the chosen destination. The strategic plan answers three basic questions: Where is your business now? Where do you want the business to go? How will your business get there? Each year of the strategic plan could be viewed as a short-term forecast.
All large companies use forecasting when formulating their strategy because without it no decisions can be made. It is true that no one can predict the future accurately but forecasting can give an idea about future on which present decisions can be made. Forecasting is therefore an important strategic tool for all businesses.
Companies make use of planning, budgeting and forecasting to map out the present and envision the future. Strategic forecasting helps with effective planning and it helps organisations make decisions that more accurately reflect their situation