LIMITATIONS OF FORECASTING

The following limitations of forecasting are listed below: 

1.         Basis of Forecasting: The most serious limitations of forecasting arises out of the basis used for making forecasts. Top executives should always bear in mind that that bases of forecasting are assumptions, approximations, and average conditions. Management may become so concerned with the mechanism of the forecasting system that it fails to question its logic. This critical examination is not to discourage attempts at forecasting, but to sound caution about the practice of forecasting and its inherent limitations.

2.         Reliability of Past Data: The forecasting is made on the basis of past data and the current events. Although past events I data are analyzed as a guide to the future, a question is raised as to the accuracy as well as the usefulness of these recorded events.

3.         Time and Cost Factor: Time and cost factor is also an important aspect of forecasting. They suggest the degree to which an organization will go for formal forecasting. The information and data required for forecast may be in highly disorganized form; some may be in qualitative form. The collection of information and conversion of qualitative data into quantitative ones involves lot of time and money. Therefore, managers have to tradeoff between the cost -involved in forecasting and resultant benefits. So forecasting should be made by eliminating above limitations.