10 Types of Business Forecasting Tools
Updated June 24, 2022
Effective forecasting is an important element for any successful business. A forecast allows you to make a prediction about future conditions for your company so you can plan accordingly. It's important to understand the various types of forecasting tools available when making your projections. In this article, we discuss the ways you can use forecasting in your business and explain some of the top forecasting tools.
The benefits of using business forecasting tools
Having an accurate forecast for a project can have a significant impact on its effectiveness and profitability. Forecasting tools provide the resources you need to make accurate predictions, which means they can be extremely valuable when properly implemented. Some of the most common reasons to create a professional forecast include:
Creating an accurate budget is a crucial task, whether you are setting financing on a single project or for your company's entire spending for the year. Understanding the forecasted costs allows you to prepare accordingly, ensuring that you have the required funding available and preventing a situation where you need to make changes while the project is underway.
Pleased customers are often returning customers, so it's important to have accurate projections on customer response when launching a new project or product. By considering past responses and market analysis, you can create a forecast of the expected customer satisfaction levels and adjust as needed to earn positive feedback.
An accurate projection of your inventory needs increases efficiency and maximizes profitability. Maintaining excessive inventory can lead to losses if you are left with unused products, while an inventory shortage can lead to production delays and potentially lost opportunity. You can use an inventory forecast to assess expectations on inventory you are selling or to project the items you need in stock to use for your company's daily operations.
Managing the logistics of shipping and receiving products can be a challenging activity. With an accurate logistics forecast, you can prepare your company to handle the creation and maintenance of the logistical infrastructure it requires. With a forecast in place, you can ensure that all resources are available and ready when needed.
For client-facing projects, delivering what you promised on the date you promised keeps your customer satisfied and increases the likelihood of repeat business or recommendations. For internal projects, meeting deadlines ensures that all other projects that rely on the project you work on can proceed on schedule. An accurate schedule projection creates realistic targets and allows you to plan around the expectations.
Creating goals for your company requires you to find the balance between achievable and aspirational. A forecast is a useful tool for setting targets, as it allows you to assess the underlying factors in meeting a set goal, such as a targeted number of units sold or new clients gained, and determine a realistic projection.
Related: Guide To Business Forecasts
10 top business forecasting tools
By identifying the tools that are most useful for your forecast, you can make projections that provide valuable guidance for your team. Here are some of the top resources you may use when creating a forecast:
1. Cash flow statements
A cash flow statement provides an overview of money that your company is spending and receiving from clients, including when you anticipate transactions to occur. It is an extremely valuable tool for making projections for your business, as having cash on hand when it's needed is a crucial element of any business plan.
The more accurately you understand periods of high and low cash reserves, the better prepared you are to make adjustments as needed, such as changing the schedule for a project or seeking out loans when cash-on-hand is insufficient for your needs.
Related: Guide To Cash Flow
2. Expert reports
One of the simplest resources available when creating a forecast is expert opinion. Any time you are creating a forecast for your company, consider researching what industry leaders are saying. A marketing professional, for example, can benefit from reading essays or watching videos from leading marketing experts when creating a project plan. This allows you to benefit from the experience and knowledge of industry leaders and apply what they share to your company to create an accurate forecast.
3. Industry association reports
Membership in an industry association comes with many benefits since you can seek the expertise of many companies at once. Industry associations can aggregate data from the many companies within them and perform independent research to create reports about key topics in the field. These reports provide you with useful information that you can apply to your projections to create more accurate forecasts.
4. Internal assessments
Creating internal reports is an excellent way to improve the quality of your projections. You can verify internal data, and the specialized focus on your company and its performance typically leads to more accurate forecasts than relying on broader trends. Combining reports on your past performance with outside data and projections can help you create reliable forecasts for your business operations.
5. Modeling tools
Advanced data modeling is a method of further analyzing data to create useful forecasts. With a data model, rather than examining a performance report or market projection and using your experience and knowledge to apply it to a forecast, you enter the data into a formula or program. The model can then perform complex calculations and extrapolations, often over thousands of iterations, to create a data-driven forecast.
Related: What Is Data Modeling?
6. Organization charts
In addition to providing a clear structure for how each role fits into your company, an organization chart can be a useful tool when forecasting. An organization chart allows you to identify areas where you may require new staff when undergoing expansion or where you can combine departments on certain projects so that you can plan for any changes.
7. Performance indicators
Understanding the most important metrics for your business can also help you make effective projections by targeting growth only in the areas that help your business prosper. Some common key performance indicators include monthly growth percentage, net client growth, gross sales and conversion ratio.
8. Production charts
Any business that creates products or requires inventory on hand can benefit from the use of a production chart to forecast inventory needs. The chart lays out what products and inventory your company requires and when you will likely need them so that you can plan accordingly and keep daily operations on schedule.
9. Public data and reports
Data such as government reports or analyses from private organizations that make their results available online or in other publications allow you to benefit from often expensive information-gathering operations at no expense to your business. Combining internal data to analyze your company's specific behavior with larger communal trends from public data can help you make the most accurate forecasts.
10. Time series models
A time series analysis examines data sets and how they change over time. Time series modeling is a useful tool when working on forecasts for your company, as it allows you to identify trends and patterns. By combining this information with other data about your company and industry, you can more accurately forecast changes.
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