UNIT -2 FORE CASTING, CAPACITY AND AGGREGATE PLANNING

INTRODUCTION
A forecast is an estimate of an event which will happen in future. The event may be demand of
Product Technology etc..

The forecast value is not a deterministic quantity since it is not an estimate based on the past data related to particular event. It is a first level decision making activity.

TYPES OF FORECAST
Technology forecast.
It is a combination of hardware and software. It is a prediction of the future characteristics of useful machines, process, procedures/techniques

Economic forecast.
Forecasting the general business environment
Future of tax revenues Level of employment Level of inflation

Demand forecast.

DEMAND FORECASTING
Demand forecast gives the expected level of demand for goods/services. This is basic inputs for business planning and control All decision are influenced by demand forecast.
Accurate demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and to arrange well in advance

FORECASTING BY MANAGEMENT GURUS

According to HenryFayol.
Forecasting is the essence of management .its technique are used in every type of organization.

According to McFarland
Forecasts are predictions or estimates of the changes if any in characteristic economic phenomena, which affect one s business plan

CHARACTERISTICS- DEMAND FORECASTING

It is basis of production planning program Estimate of sales in future. It is done for a particular period Forecasting is done based on the past trends and present economic condition It tries to arrange the appropriate promotional efforts. It helps the firm in planning for manpower training.

NEED OF DEMAND FORECASTING

NEED FOR SHORT TERM DEMAND FORECASTING Appropriate production scheduling Helping firm in reducing costs Work force scheduling Determining the appropriate price policy Setting sales target and establishing controls and incentives Forecasting short term financial requirements NEED FOR LONG TERM DEMAND FORECASTING Production planning Planning long term financial requirements Implementation of project Effective control Planning for new plant Expansion of an existing unit

TYPES OF DEMAND FORECASTING

Long range(2-5 years) Intermediate range(3-12 months) Short range(2-3 week)

Forecast horizon Long range(years)

Examples New product lines Capital funds Facility needs Product group Departmental capacities Work force Inventories Purchasing

Units of forecast Rupees Rupees Space volume units Hours Units Rupees

Intermediate range(months)

Short range(weeks) Machine capacities Hours Cash Rupees Specific products units

OBJECTIVES OF DEMAND FORECASTING

Short term
Appropriate scheduling of production to avoid over production and under production. Regular supply of raw materials Proper management of inventories Forecasting financial requirement for short period. Formulating a suitable sales strategy in accordance with the changing pattern of demand.

contd
Long term
Planning for new project , expansion Modernization of an existing unit. Evolving a suitable strategy for changing pattern of consumption. Arranging suitable manpower.