Approaches to Forecasting

26/08/2020 1 By indiafreenotes

These are two approaches to forecasting.

  1. Top-down Approach:

In this approach, forecast is done at the corporate level or the strategic level. It starts with a forecast of general economic conditions. It forecasts gross national product, consumer and wholesale price index, interest rates, unemployment level, government expenditures, etc. and estimates the market potential of the product for the entire industry.

Then, it determines its current market share and forecasts success of its product in the market. This forecast is used for operational planning and budgeting the future programmes.

  1. Bottom-up Approach:

In this approach, middle and lower-level employees project the business operations in the coming years. For instance, they do customer survey to know what customers want to buy. Such forecasts are made by different sales people which are finally summed up to give the sales forecast.

Usually a questionnaire is mailed or completed through telephonic interview with the prospective customers to make such forecasts. These forecasts are usually reliable for small period of one year.