Difference Between Forecasting and Prediction (with Example and Comparison Chart) - Key Differences (2024)

When we hear the terms ‘forecasting’ and ‘prediction’, that one thing that strikes our mind is the future. In business, estimation of the demand of the product in future is called forecasting. It is not similar to prediction. Prediction is simply the guess of the manager. Forecast relies upon the scientific analysis of past data. But, prediction is dependent upon subjective considerations. The job of the manager becomes quite easier when he has an accurate forecast.

It is a well-known fact that the future is not certain and it is full of risk. Nobody knows what is going to happen in the next moment. For reduction of the risk, it is preferred to take preventive measures. And for the reduction of uncertainty, planning is required.

So, in this content, we will talk about the differences between forecasting and prediction.

Content: Forecasting Vs Prediction

1. Comparison Chart
2. Definition
3. Key Differences
4. Example
5. Conclusion

Comparison Chart

Definition of Forecasting

Forecasting implies the determination of future trends and expectations taking past data or opinions as a base. It is used to objectively assess the future course of action. Because the future is not certain, no forecast is 100% accurate.

It can either be physical or financial. It aims to reduce threats and challenges. Also, it seeks to exploit maximum benefit out of the opportunities predicted. It plays a key role in capital budgeting.

It relies upon calculation and estimation, which uses data from events that took place in the past. And then it is combined with the recent trends to arrive at the outcome. So, we can make a statement with this outcome. In other words, what we do in forecasting is:

1. Collect past data
2. Analysing collected data
3. Observing recent trends
4. Predicting future outcome

Note: For accurate forecasting, the collection of the right set of data is vital. Also, based on how much data you have and how much you want to forecast, the accuracy of the data will differ.

The short-range forecast is important for production control and inventory control. As against, Long-range forecasts are significant in capacity designing, investment planning and layout planning. Forecasts that we often encounter are commonly related to:

Types of Forecasting Tools

Forecasting tools can be of two types:

1. Qualitative Tools: These are based upon a judgement that we make on the basis of past experience and analysis of future trends. Due to the dependency of this tool on individual judgement, the forecast is affected by human biases.
2. Quantitative Tools: These tools forecast data by analyzing past data. Further, it relies on statistical methods to make future predictions. These methods can be:
   • Time Series Analysis
   • Casual Methods

Utility

Forecasting minimizes the risk related to business fluctuations, which has an adverse effect. This results in employment, discourage the formation of capital and reduce profit margin. At present, forecasting involves the use of scientific tools which reduces the risks associated with it to a minimum. Also, the likelihood of precision increases.

Also Read: Difference Between Planning and Forecasting

Definition of Prediction

Prediction means a statement about an event, which an individual thinks will happen in future. This statement does not rely on analysis. But we make it on the basis of previous knowledge and experience. It is a general statement about the future event. Also, it can be a trend, estimated on the basis of history, observation, etc.

The term ‘prediction’ is a combination of two words, i.e. ‘pre+diction‘. Here, ‘pre’ means ‘before’ and ‘diction’ means ‘utterance’. So, prediction is talking about the future. It is related to the estimation of the outcome of unseen data.

While predicting something one can take facts and evidence as a base. But it is also based on instinct or gut feeling.

When it comes to applications, predictions can be made in the field of sports, politics, movies, etc.

Also Read: Difference Between Hypothesis and Prediction

Example

Conclusion

All in all, we can say that in the case of forecasting we use relevant data to make estimations about the future. Also, we make forecasts for the near future.

But, when we predict something, it is not necessary to collect and analyse relevant data to make a statement. That is to say, one can make predictions even without the use of data. Besides, the time horizon in case of prediction can be the near future or distant future.