Short, medium and long-term forecasting - Marketing Management

Marketing and other managerial functions need these three types of forecasting horizon because each directly affects a different business function, and more importantly, medium and long-term forecasting are critical to the corporate planning process.

Short term Forecasting in Business

Short-term forecasts are usually made for tactical reasons that include production planning and control, short-term cash requirements and adjustments that need to be made for seasonal sales fluctuations. This latter factor can be very important for production, whereas the general trend may be of less consequence. Such forecasts are for periods of less than one year, with a normal range between one and three months.

Medium term Forecasting

Medium-term forecasts are made for minor strategic decisions in connection with the operation of the business. They are important in the area of business budgeting for the operating budget, and it is from this forecast that company budgets are built up. Incorrect forecasting can have serious implications for the rest of the organization, for if it turns out to be over-optimistic, the organization will be left with unsold stock and will have overspent on production. Money will be owed to the bank and other creditors, and stock may have to be sold at a loss to raise money to satisfy these creditors. Many bankruptcies among smaller firms can be ascribed to insufficient attention being paid to medium-term sales forecasting. This forecast is used for such matters as the staffing levels that are required to achieve expected sales, the amount of money to be spent on sales effort, and short-term capital requirements for such items as machines to be purchased to meet increased production. The time period for a medium-term forecast is normally one year.

Long-term forecasts are for major strategic decisions to be taken within an organization, and they very much relate to resource implications. They deal with general rather than specific items, and as shown by Raspin and Terjesen2 rely more heavily in their computation upon such factors as government policy, social change and technological change. They are, therefore, concerned more with general trends, and in the light of these trends, attempt to predict sales over periods greater than two years. In some strategic, heavily capitalized industries, predictions might be needed for a decade or more. The problem is that for these lengths of time the forecast cannot be more than vague, and planners in retrospect blame the forecast when things go wrong (often for reasons completely outside the possible knowledge of the original forecaster) and forecasting thus receives criticism.

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