The Ultimate Guide to Business Forecasting

It’s rare that a business will simply play things by ear. Without forward planning, identifying goals and reaching targets, staying afloat will certainly be a struggle.

This is where business forecasting comes into use. Although it’s impossible to predict the future, business forecasting provides greater certainty, allowing businesses to create successful long-term strategies that deliver a competitive advantage that keeps them ahead of the rest.

As an energy supplier, forecasting is a big part of our day-to-day at Gazprom Energy. It also plays a major role in countless other industries, such as finance, retail, manufacturing and marketing.

Whether it’s through detailed, sophisticated methods or simply by going with your gut, business forecasting can be a huge benefit. From assessing market conditions to simply making better decisions, we’ll show you why it’s so important and how you can get started forecasting your own business’s growth in the future.

What is business forecasting?

Business forecasting involves the use of tools and techniques to predict changes in business, such as sales, expenditures, profits, and losses. This allows businesses to shape their strategies, using the quantitative and qualitative insights they unearth to make more informed business decisions and identify more probable outcomes.

How does forecasting help a business?

Whatever industry you’re in, business forecasting can help in all manner of different ways. For starters, anything that provides a glimpse into a more certain future puts you at an immediate advantage.

With the right data and statistics, businesses are able to measure and determine what success looks like to them, setting realistic and measurable goals to help get them there. By setting these goals, a business can evaluate its progress, adapting any methods as needed before continuing onwards.

A company that can get a peek into the potential trends that might be on the horizon can also be more sensible with its budget and time. By combining future predictions and information with its current functionality, a business can create meaningful insights that help inform both the estimation and allocation of its budgets.

This future foresight also comes in handy if a business needs to adjust its strategy and operations. Crucially, forecasting allows organisations to be active rather than reactive.

By anticipating changes, companies have the time to rethink things, put the necessary changes in place, and make better use of resources.

Business forecasting methods

There are two basic methods that businesses can use to help them in their forecasting: quantitative forecasting and qualitative forecasting.

What is quantitative business forecasting?

When accurate past data is available, quantitative forecasting lets businesses analyse patterns and make more accurate predictions regarding the probability of future events. Consistent and objective, it looks at trends from existing data, connecting and analysing different variables to highlight the cause and effect between events and outcomes.

Because it relies so heavily on data and figures (such as sales numbers or census statistics), there is generally little human element to quantitative forecasting. Examples of quantitative models include:

• The indicator approach: By looking at the relationship between specific indicators being stable over time (such as GDP and the unemployment rate), forecasters can estimate a business’s approach.
  
  
• The average approach: In this approach, the predictions of future values are equal to the average of past data. When unknown values need to be predicted, assuming the future will resemble the past, the average approach is the go-to method.
  
  
• Econometric modelling: Here, forecasters assume the relationships between indicators will stay the same, testing the consistency and strength of the relationship between datasets.
  
  
• Time-series methods: In time-series approaches, forecasters track what happened in the past to provide an accurate view of the future.

What is qualitative business forecasting?

Essentially, qualitative forecasting is the predicting of future projections based on the opinions and judgements of consumers and experts. When you lack enough past data to provide sufficient analysis, then this method can come in handy. In such cases, an expert or forecaster can link whatever data you do have to make qualitative predictions.

Better suited to short-term projections, qualitative forecasting favours contrasting opinions and a focus on judgments over calculable data. Such models include:

• Market research: The polling of customers or employees to uncover insights into their preferences, opinions and feedback regarding specific products or services.
• Delphi model: The polling of a panel of experts to find out their opinions on specific topics. Their responses and predictions are then compiled into a forecast.

How to forecast business growth 

Businesses looking to begin a process of forecasting can start by following the below steps:

1. Develop the basis: Before you do anything else, you should investigate your business’s current standing in its market – what are your most popular products, for instance? The information you identify here will help you to get a better sense of your business overall.
   
   
2. Estimate the future operations of the business: What will realistically be the future conditions of the industry your business operates in? Basing this on collected data will help you to make quantitative estimates for the scale of future operations.

3. Regulate the forecast: Whatever your forecast turns up, you should compare it to actual things that happened within the business. By looking at the differences in previous results and current forecasts, you can start to consider the reasons for such deviations. From here, you can then decide the actions you need to take to correct those deviations in the future.
   
   
4. Review the forecasting process: Investigating the deviations between forecasts and actual performance data allows improvements in the process to be made at every step. By doing so, you can evaluate the accuracy of both your chosen model and the process itself, changing each step as needed.

How does Gazprom Energy use data and forecasting?

So, how do we use business forecasting to optimise our operations here at Gazprom Energy? Andrew Whiston, Flexible Trading Analyst and member of our Energy Procurement Desk (EPD) explains: 

“GE use forecasting tools to predict how much energy our customers are likely to consume on any given day. This is based on historical consumption, industry type, location in the country, and in relation to weather.

“A more accurate forecast provides our trading team with vital information in advance of the day of delivery. This allows the team to purchase energy in anticipation of demand, which in turn ensures we don’t end up with more or less gas or power than our customers will use. By doing this, we ensure both ourselves and our customers avoid incurring any expensive imbalance penalty fees from the National Grid.

“For example, a forecast with warmer, windy weather for tomorrow will remove demand out of the picture. Having visibility of this allows us to manage our gas procurement to ensure we’re optimising our trading performance and in these market conditions, of course, every unit helps!”

Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0333 443 2569.

The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.