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Criteria of a Good Forecasting Method :

(1) Accuracy in Forecast:
The demand forecast should be accurate as far as possible. It is necessary to check the accuracy of the past forecasts on the present sales and of present forecasts on the future sales. The accuracy of forecast can be measured by:
The degree of deviation between forecasts and actuals
The extent of success in forecasting directional changes.

(2) Simplicity :
The technique of demand forecasting must be simple and easily understable. A good understanding of the method used is necessary for a proper interpretation of the results.

(3) Economy :
The forecasting method should be economical in the sense that it should not involve too much money and managerial effort. The results achievable by a forecasting method must be weighed against the cost of the method. A firm has to strike a balance between the benefits from a forecasting method and its cost.

(4) Availability:
The results of a forecast should be readily available and be able to produce meaningful results quickly. Forecasting methods which take a long time to work out may produce useful information, but because of the long time factor, it may not be helpful to the management in taking quick and effective decisions.

(5) Durability:
The technique of demand forecasting must be such as proves useful in the long run. The durability of demand forecast depends on two factors:
It is based on the reasonableness and simplicity of the relationships of the variables concerned, like relation between price and demand, level of income and volume of sales etc.
It also depends upon the stability of the underlying relationships measured.

(6) Flexibility :
The forecasting procedure should permit changes to be made in the relationship between the different variables as and when they occur. Flexibility, thus, implies that the coefficients of the variables should be capable of being adjusted from time to time to meet the changing conditions.

(7) Timeliness:
The forecast should be capable of being maintained on an upto date basis. There is a time - gap between the occurence of an event and its forecast, it is known as lead time. Longer the lead the forecast has before the event, the greater would be its usefulness. At times, a firm may sacrifice some accuracy for gaining a lead' rather than sacrificing lead for accuracy.

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