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Features of a good forecasting method
There are various methods of forecasting demand of product in market. Of them, some are very costly and a few are cheap. Some forecasting methods are flexible and some require skill and sophistication. Therefore, there is a problem of choosing the best method for a particular demand situation.
What are the criteria of a good forecasting method? They are:
The management should have good understanding of the technique chose and they should have confidence in the technique adopted. Then only proper interpretation will be made.
According to Joel Dean, the plausibility requirements can often increase the accuracy of the result. Accuracy entails the executives to accept the results. Experienced executives will have a market feel and they can contribute effectively.
The method chosen should be of simple nature or ease of comprehension by the executives. Elaborate mathematical and econometric procedures are less desirable, if the management does not really understand what the forecaster is doing.
Cost is a primary consideration which should be weighed against the importance of the forecasts to the business operation. There is no point in adopting very high levels of accuracy at great expense, if the forecast has little importance in the business.
Immediate availability of data is a vital requirement in forecasting method. The technique should yield quick and meaningful result. Delay in result will adversely affect the managerial decision.
To conclude, the ideal forecasting method is the one which yields good returns and costs in accuracy meets new circumstances with flexibility.