Lesson eLearning

Explain the role of forecasting in the planning process and give an example of a forecasting method suitable for a small business.

medium 3 marks Class 12 · Business Studies · Planning
Answer
Forecasting predicts future demand to guide planning; a moving‑average method is suitable.

The correct answer is Forecasting predicts future demand to guide planning; a moving‑average method is suitable. — Step 4: The moving‑average method averages recent sales figures to smooth out fluctuations.

Step-by-step solution

  1. Step 1: Forecasting identifies expected future sales or demand.
  2. Step 2: It provides data for setting production, inventory and financial targets.
  3. Step 3: With reliable forecasts, a small business can avoid over‑production and stockouts.
  4. Step 4: The moving‑average method averages recent sales figures to smooth out fluctuations.
Common mistake: Ignoring the link between forecast and planning decisions.

Concept tested: Role of forecasting in planning

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