The growing competition, rapidity of change in circumstances and the trend towards automation demand that decision in business are not based purely on guesses and hunches but rather on a careful analysis of data concerning the future course of events. The future is unknown to us. Yet every day we are forced to make decision involving future and therefore there is a uncertainty. Great risk is associated with business affairs. All businessmen are forced to make forecast regarding business activities.
Success in business depends upon successful forecasts of business events. In business or trade the importance of forecasting is so great, that when someone enters into the business world, he really enters the profession of forecasting. In recent times, considerable research has been conducted in this field. Attempts are being made to make forecasting are scientific as possible.
Business forecasting as such is not a new development. Every businessman must forecast: even if his whole product is sold before production. Forecasting has always been necessary. What is new in the attempt to put forecasting on a scientific basis is to forecast by reference to past history and statistics rather than by pure intuition and guess-work.
One of the most important tasks before businessmen and economists these days are to make estimate for the future. For example, a business man is interested in finding out his likely sales next year or as long term planning in next five or ten years so that he could adjust his production accordingly and avoid the possibility of either inadequate production to meet the demand or unsold stocks.
Similarly, an economist is interested in estimating the likely population in the coming years so that proper planning can be carried out with regard to jobs for the people, food supply and so on. First steps in making estimates for the future consists of gathering information from the past. In this connection we usually deal with statistical data which are collected, observed or recorded at successive intervals of time. Such data is generally referred to as time series. Thus when we observe numerical data at different points of time the sets of observations is known as time series.
Business forecasting refers to the analysis of the past and present economic conditions with the object of drawing interface about probable future business condition. The process of making definite estimates of future course of events is referred to as forecasting.