Forecasting is basically done to project or predict a future event. The forecast is made on the basis of past and present performance as well as trends going on at present. On the other hand, planning is the process of conscripting plans for something that you want to happen in the future.
Planning is also done based on the performances of the past and present and also expectations from the future. Both forecasting and planning are important managerial functions that are pertinent to other functions.
In simple words, we can say that forecasting is to talk about what could happen in the future depending on the performance of a company at present or in past years. Whereas, planning is doing the thinking before you take action and deciding in advance what should be done in the future.
In this article, you will learn about what forecasting and planning are and what are the main differences between both of them.
Table of Contents
What is forecasting?
Forecasting is the analysis and clarification of the state of the future regarding the operations that you are planning to undertake. In the process of forecasting, information from both past and present and also facts are taken into consideration to foresee future events. therefore, we can say that forecast helps us to look forward to predetermining trends and events of the future and also their possible impacts on the organization.
Managers working at different levels of an organization perform forecasting. In addition to this, sometimes experts like economists, analysts, and statisticians have also performed forecasts for the organization to forecast future uncertainties. Forecasting is of two types –
Quantitative Forecasting Method –
Different types of a quantitative forecasting method are –
- Time Series Analysis
- Regression Analysis
- Econometric Analysis
Qualitative Forecasting Method –
A qualitative method can be of the following types –
Some other types of forecasting techniques are the naive forecasting method, the judgmental forecasting method, the time series forecasting method, etc. Naive forecasting involves using the previous period’s actual data as the current period’s forecast, without any adjustments or consideration of causal factors. Judgmental forecasting methods rely on intuition, opinions, and subjective probability estimates.
Time series forecasting involves analyzing past trends to predict future events that occur over a period of time. It relies on the assumption that future trends will follow patterns similar to those seen in the past. In such forecasting planning, the formulate plans for the present period’s forecast as well as the future course of action are based upon historical trends through a sequence of time.
No forecasting techniques will get you 100% accurate predictions for the future course of events. There is always a presence of a little bit amount of guessing which increases the chances of error and hence, risks.
What is Planning?
Planning is one of the many basic managerial activities. It assists in establishing how, when, and what something should be done. With planning, you decide on a course of action for the future, whose focus is to reach a certain undertaking in the future. it is an intellectual, goal-oriented, and all-pervasive activity. Planning refers to setting goals for future outcomes and then determining what needs to be done in order to reach those goals by using relevant data. This can help make the goal more achievable and increase the chances of success. Expectations, responsibility, and direction can be established through planning, ensuring that everyone involved is aware of their role in the process.
Planning helps the firm to get connected with the future environment by bridging the gap between present and future environments. Planning infers establishing future actions and making prearrangements to attain them. In the process of planning, relevant information and facts are collected and analyzed and assumptions and locations are made according to the decided plan.
In simple words, we can say that planning premises rely on the way to look ahead and take a peep into the future so that you can prepare for approximate events in the future. This process assists organizations to establish their resources according to the objectives and opportunities of the future.
Comparison Chart Planning vs Forecasting
|Planning is a process of looking into the future and plan course of actions for future for organization and make preparations for different departments accordingly.
|Forecasting is a process of making a prediction for the performance of an organization in future on the basis of its performance in past and present.
|Planning is based on pertinent information, objectives, and forecast.
|Forecasting is based on assumptions and speculations which requires a certain degree of guess.
|It is concerned with assessing future and preparing for it.
|It is concerned with approximating future events and trends.
|Planning stresses on expectations and facts.
|Forecasting stresses on facts only.
|It is the responsibility of top level of managers.
|It is the responsibility of managers at different level and also experts of different departments.
Key Differences Between Forecasting and Planning
Forecasting based on past data can provide valuable insights and help anticipate upcoming trends. However, forecasting is not a replacement for planning – it requires the use of planning to develop strategies for achieving goals. Planning is essential to create a roadmap and anticipate the future, whereas forecasting can only provide insight into what may happen in the future. Some of the notable differences between forecasting planning are given below –
- Planning is the process of breaking down goals into actionable steps and outlining a roadmap for how to achieve them. Forecasting, on the other hand, is predicting future performance based on past and present data.
- Planning is used to decide the best path forward, usually on a long-term timeline. Forecasting is used to predict future performance, from both past and current performance.
- Planning is based on expected results, while forecasting uses past performance data to build a model for estimating future performance.
- Planning is a proactive process that requires strategy and an understanding of future trends. Forecasting is a reactive approach that relies on past numerical data and existing trends for estimating future action.
- Planning is the process of setting goals, making decisions, and taking action based on those decisions. Forecasting, however, is the process of estimating future event using personal opinion-based forecasting or historical data.
- Forecasting is not completely accurate as it relies on assumptions and estimations. Planning, on the other hand, takes into account forecasting, relevant current data, and the objectives of the organization.
- Planning is essential for financial planning, while forecasting is more useful for predicting future trends and actions. Planning implies a goal or purpose while forecasting is more about predicting future outcomes.
The processes of planning and forecasting both require certain abilities such as farsightedness, reflective thinking, experience, decision making, and also imagination. It is the responsibility of top-level managers to perform these tough tasks efficiently and effectively. Therefore, the top management is required to have these abilities to shape the future of a firm. Forecasting is also an important part of the planning process because a huge part of planning is reliant on the outcomes of the forecast. For example, financial analysts need to use both planning and forecasting to meet the organization’s objectives.
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