Question

What are the prerequisites of a good forecast ? discuss them in detail?

Answer 1

Time frame: The first factor that can influence the choice of forecasting is the time frame of the forecasting situation. Forecasts are generally for points in time that may be a number of days, weeks, months, quarters, or years in the future. This length of time is called the time frame or time horizon. The length of the time frame is usually categorized as Immediate, Short term, Medium or Long term.


Cost/Economy of forecasting: Though the firm is interested in accurate forecasts, the benefits of accurate results must be weighed against the cost of the method. Whilechoosing a forecasting technique, several costs are relevant. First, the cost of developing the model must be considered. Second the cost of storing the necessary data must be considered. Some forecasting methods require the storage of a relatively small amount of data, while other methods require the storage of large amounts of data. Last, the cost of the actual operation of the forecasting technique is obviously very important. Some forecasting methods are operationally simple, while others are very complex. The degree of complexity can have a definite influence on the total cost of forecasting.