The role of Cost Forecasting
The costs required in a project need to be managed with careful planning so that unwanted situations and shortcomings can’t affect the payment schedules or damage partner’s prestige. Cost forecasting is a useful method to secure the needed expenses at the different payment stages of a project and a right management of project income is important as it will provide the timely payments to the various shareholders in a project. Cost forecasting is the understanding of the project payment system dependent on the legal supplies and also help to figure out the required money during the course of the project.
Forecasts are important for every business organization, construction companies and for every considerable management decision; but a forecast can never be right for the dynamic character of the additional business environment and is important for all kinds of functional, strategic and budgetary planning.
Both the forecasting techniques and models can be analyzed and quantitative and their sophistication level relies on the information type and the effect of the decision.
The forecasting model a firm should be dependent on some factors like: forecasting time horizon, data availability, accuracy required, size of forecasting budget and availability of a qualified personnel.
Forecasting is differentiated into four general types, such as: qualitative, time series analysis, casual relationships and simulation.
Qualitative techniques: These techniques in forecasting have grass roots forecasting, market research, panel agreement, historical resemblance and the Delphi technique.
Time series forecasting: They generally tell the future based on the previous data.
A simple moving average forecast: It is used when the need for a product or service is firm without any seasonal variations.
A simple moving average forecast: It varies as per the weights; given a perfect factor and so it is able to vary the effects between the recent and previous data.
Forecast errors are the variation between the forecast value and the actual value; all forecasts have some degree of error but are important to differentiate between the sources of error and size. The sources of error are often occurred ones and tendency to happen; there are various measurements to describe the degree of error in a forecast. Tendency errors happen when a mistake happens but random errors happen normally.
Article Souce: www.spireconsultinggroup.com