Planning and forecasting are closely related to each other. Planning is deciding in advance what is to be done in future. Futurity is its essence. But future is uncertain and risky.
Planners, in majority of cases, do not know with certainty the conditions which will exist in future, when activities take place. As a result, they are forced to make certain assumptions regarding future. This is forecasting. Forecasting provides pertinent information for successful planning. Planning without forecasting proves to be wasteful and useless.
Fayol aptly remarked that
the plan is the synthesis of the various forecasts; annual, long-term, short term, special, etc.
Forecasting is the essence of planning. In fact, forecasting is so essential to sound planning that it would not be an exaggeration to state that the success of the plan depends in a large measure upon the validity and accuracy of the forecast.
Forecasting as an Aid to Planning
Forecasting is nothing but prophesying the future. The element of error and risk is inevitable. But there is no way for escaping from this. The best alternative would be to make use of the existing forecasting instruments in a judicious manner, in a discriminating way, allowing for the risk factor involved and plan accordingly.
In our daily actions, some amount of forecasting is inevitable. The very fact that so many people (economists, politicians, managers) employ forecasting as an instrument bears ample testimony to the fact that it is an invaluable guide to steer people to suitable actions. Forecasts do not have to be ‘right‘ to be useful. In spite of all its limitations, business forecasting is immensely useful and therefore unavoidable. Without business forecasting, individuals as well as organizations are at the mercy of future events.
Forecasts are key aids to planning in the following ways:
1. Forecasting provides a sound foundation for planning activities by supplying pertinent information regarding future.
2. It focuses attention on the future and, by doing so, helps in bringing a singleness of purpose to planning that cannot easily exist otherwise.
3. Forecasting improves the quality of managerial planning. For example, if a company is able to anticipate the future requirements of customers, it can plan and develop new products in an appropriate way.
4. Forecasting helps in minimizing costly planning errors. Forecasting also helps in preparing the organization for future crises and emergencies. The organization, through adequate planning measures, can buffer itself against many, if not all, of these unexpected changes. It may be highly impossible to evolve the necessary shock absorbers absorbing the shocks injected by changes in business affairs and cycles but at least their impact can be fairly assessed, the unfavorable consequences can be minimized.
5. Forecasting supplies vital information regarding the weak spots in the organization thereby paving the way for appropriate control. Once such areas are spotted, it is easy for managers to establish check posts for effective control and sound planning thereafter.
Although uncertainty can never be completely overcome, intelligent and systematic forecasting can eliminate some of the difficulty. Forecasting will never be an exact science, but frequently affords better results than the pure guess.