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The main difference between Forecasting and Planning is that Forecasting, is a prediction or projection about a future event, depending on the past and present performance and trend and planning is the process of drafting plans for what should do in future, and that too based on the present performance plus expectations.
Forecasting vs. Planning
Forecasting is predicting the future performance of the organization based on past and present performance and data, whereas planning is the process of thinking about the future course of action in advance. Forecasting provides a base for planning and plays a vital role in the process of planning. Forecasting based on a certain degree of guess and assumption of a particular event conversely planning is based on objective, performance and relevant information which require making a plan. Forecasting based on Facts and some assumptions based on past and current performance. Planning on the other hand stresses on facts and expectation. Forecasting is done by different level of managers, analysts, and experts employed by the organization while Planning is the responsibility of top-level managers.
What is Forecasting?
Forecasting is a procedure that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future tendencies. Businesses utilize forecasting to determine how to apportion their budgets or plan for anticipated expenses for an upcoming period. Forecasting typically based on the projected demand for the products and services offered. Investors utilize forecasting to establish if events affecting a company, such as sales expectations, will greater or less the price of shares in that company. Forecasting also offers an important benchmark for firms, which need a long-term view of operations. The further away from the forecast, the higher the chance that the evaluation will be inaccurate. Finally, statisticians use forecasting in any situation that requires the use of forecasting.
- Qualitative and quantitative forecasting method: Personal opinion based forecasting is qualitative method whereas; forecasting based on past numerical data is quantitative forecasting.
- Naive forecasting method: In this method, last year’s used as the present period’s forecast, without trying to adjust them.
- Judgmental forecasting method: This method of forecasting based on subjective estimates and intuition. The Statistical survey, the Delphi method, composite forecast all are judgmental forecasting.
- Time series forecasting method: In this method, a group of data recorded over a specific period. Most of the time past patterns repeat in the future.
What is Planning?
Planning is the basic management function, which includes deciding beforehand, what is to be done, when is it to be done, how it is to be done and who is going to do it. It is a mental process which lays down an organization’s objectives and develops various courses of action, by which the organization can achieve those objectives. It chalks out accurately, how to attain a definite goal. Planning is nothing but thinking previously the action takes place. It helps us to take a look into the future and decide in advance the way to deal with the circumstances, which we are going to meet in the future. It consists of logical thinking and rational decision making.
Characteristics of Planning
- First and foremost managerial function: Planning sets out the base for other functions of the management.
- Goal oriented: It centers on defining the goals of the
- Pervasive: It is pervasive in the perception that it is present in all the parts and needed at all the levels of the organization.
- Continuous Process: Plans are made or done for a specific term, say for a month, quarter, year and so on. Therefore, it is a constant process, as the plans framed, performed and followed by another plan.
- Intellectual Process: It is sarcasm or mental exercise at it involves the application of mind, to think, forecast, etc.
- Decision making: Decisions made regarding the choice of alternative courses of action that can be undertaken to reach the goal.
- Forecasting implies predicting the future performance of the enterprise, taking into account past and current performance and facts. Unlike, a mental process in advance the future course of action for the firm and also for various other units, within it, is called planning.
- Forecasting connected to predicting the future course of event or trend. As against this, planning associated with assessing the future action and making provisions to reach the same.
- Forecasting activity performed by different levels of managers, or sometimes experts, like statistician, analysts, and the management employs economist. Conversely, it is the duty or liability of the top-level managers to formulate plans for the business.
- Forecasting depends on postulations and assumption, which involves a certain degree of guess and so the possibility of error can’t be removed completely. On the other hand, planning based on relevant information, forecasts, and objectives.
- Forecasting takes into account facts concerning the past and present execution of the entity. In contrast, planning deems past and present data and facts, as well as aspirations, to decide before the future course of action.
Forecasting and Planning, both require abilities like reflective thinking, farsightedness, decision making, experience, and imagination, on the part of managers, to perform the difficult task effectually and efficiently. Forecasting has a big role to play in operation or process of planning as the planning premises rely on forecasts.