It’s much simpler when an entrepreneur can see the future. How their business will look like. What will look like the competition? What will be trends on the market?
All of this is important, especially because of a decision making process today and in the future.
If you as an entrepreneur can know sales for the next week, month or year, you’ll be able to align your spending according to that sales numbers. In such a way, you’ll invest only in things that we needed in this period of time.
Because of that I would like to answer about several questions about forecasting.
What is Forecasting?
If I know what will be tomorrow I’ll be prepared about that tomorrow. If we can see only one second in the future then the life will be much easier. The process that can give us some approximately coordinates about the future is forecasting.
As you can see, in the simplest words forecasting means looking into the future, or estimating the future. But, this isn’t a simple process.
There are plenty of statistical methodologies that can be used to forecast the future from historical data stored on business computers. You, probably use MS Excel to find how much income you receive a previous year from selling and add some percentage to predict the next year. However, in most cases this is wrong forecasting technique. This is wrong because you don’t include environmental factors and forces into the forecasting.
Is Forecasting a Waste of Time?
I’ve read many times some quote that the only thing certain about a forecast is that’s always wrong. Ok, predicting the future is not a simple task, and because of that we can’t expect that we can have 100% true forecasting. But, the right question is: how much is the difference between reality and something previously forecasted? Is it 10%, or 20%, or 50% or catastrophic 100%?
I can say that it’s useful to know the future. Entrepreneurs can have only benefits from forecasting, but not from forecasting that will miss the reality with 50% to 100%. That type of forecasting is only waste of time, that can have dramatic negative effects on entrepreneurs and businesses.
Another factor that influenced forecasting accuracy is a time horizon. If you forecast for the period of a month the forecasting will be more accurate than for a period of a year. How much future is closer to us, we can easily forecast it.
As you as an entrepreneur go from one forecasting process in another you’ll increase personal skills for forecasting and each next process will be more and more accurate than previously. This means that your skills will minify that percent of errors or differences between reality and forecast.
What is the Elements that Makes Forecast as True as Possible?
Most important elements that have direct influence on the precision of the forecasting are:
- The quality of historical data that will be used in the forecasting process.
- External environmental factors as an addition of historical data. These factors can be:
- Competitive Factors,
- General Business Conditions,
- General Economic Conditions,
- Market Trends
- Internal additional factors as a business own plans for advertising, promotion, product development and pricing.
- Time Horizon for forecasting.
- Entrepreneurial and Managerial Skills to forecast the future.
You can read the part 2 of this series about Entrepreneurial Forecasting at Demand Forecasting and part 3 at Five Principles of Entrepreneurial Forecasting.
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I also think successful entrepreneurs possess a clear vision of what they want to achieve, they dreaming big you should actively visualize success in your mind s. ”The YES Movie”produced by Louis Lautman ,
http://www.TheYESmovie.com
I agree with you Anna that clear vision about what an potential entrepreneur want to achieve is one of the crucial factors about success especially to be included in business design process.