Your childhood friend, Christine, plans to open an online boutique shop that specializes in Batik fashion for the international market. She intends to run the online business single-handedly and she casually commented that: "I can manage both the marketing, sales, and financial operations. It is a piece of cake!"

One year later, you bumped into her and you asked her how her business is doing. She said: "Very bad. I have difficulty fulfilling orders, at times I have excess stocks, and sometimes I run into shortages."

As someone trained in finance and international operations, take this opportunity to educate Christine on the role of forecasting in projecting a company's future income and expenses.

1. What is forecasting all about?

 Forecasting is a technique that used historical informations to make an informed estimates that are predictive in determining the future trend or curve in supply and demand in business. Forecasting is used by businesses to make an informed business decisions. Through forecasting, Christine can utilize her time and resources in operating her business. As mentioned in her case, Christine is having a difficult time in fulfilling orders (In layman's term: meeting the customer's demands), at times having an excess stocks, and also sometimes having a shortage in stocks. With forecasting, Christine can predict the estimated sales of her business so that she can prepare and fulfill every demands. On the other hand, she can have a basis on when she need to restock and how many she need to restock.

Step-by-step explanation

2. Type of forecasting relevant to new ventures.

There are two types of forecasting, the qualitative and the quantitative method. Below is the example of the two which is the most common and relevant to the case.

Qualitative Method 

• Market Research - Polling a large number of people about a product or service in order to estimate how many people will purchase or use it once it is out in the market. In this method, you can estimate on how big is your target market and how many potential customers you can have.

Quantitative Method 

• Time Series - It uses historical data to model future events The variations between time series methodologies can be found in the finer points, such as by giving more weight to recent data or discounting those outlier points. The forecaster hopes to get a better than average view of the future by monitoring what happened in the past. This type of forecasting is the most common and very easy to use that's why even the small businesses uses this. You only need your historical data about your past demands for you to predict the future demands.