About understanding and relationship between the terms „forecast” and „forecasting” in project management

Forecast and forecasting as economic categories play an important role in project management. Quality, reliability and accuracy of their use have a significant role in planning and influence the results of the project activities. The study of economic concepts „forecast” and „forecasting” is predetermined by the impact which the given categories have in relation to project management. As more important and dominant in this case can be considered the term „forecast” as the forecasting, logically will stem from its understanding and definition.

The purpose of the study is to provide an understanding of the terms „forecast” and „forecasting” in the project management, and also to analyze in what proportions they are one to another.

The modernity of the selected theme is determined by the following circumstances:

– forecast for most projects is not legally an act, but its development favors making effective and targeted management decisions of the organization, realizing the project;

– forecasting stands in strategic and operational activity, therefore its using in project management must be advanced and confirm as part of the organization activity.

It is necessary to emphasize, that while in organizational planning a significant number of forecasts are developed, in project management forecasting has little attention. On one hand, the reasons for this stem from the fact that the project is already a complex „venture, which manages human, financial and material resources in a new way to perform a unique range of operations with a specification, within the constraints of cost and time, so as to achieve beneficial change, defined in a quantitative and qualitative form”. [5, 2] On the other hand, they are related to the need of reconsideration of the necessity for professional forecast for the conditions and benefits of the future project results in terms of globalization of markets, increasing the dynamics and uncertainty of the external environment, in which companies operate, implementing projects.

To fulfill the target, the following scientific tasks are placed:

• -    disclosure of the essence of the forecast and forecasting in project management and the possibilities and the problems of their use, in view of the specific conditions and requirements of the project environment;

• -    study of the existing methods and approaches for development forecasts and their applicability in the project management.

Understanding the need of professional forecasts and forecasting will open new opportunities and benefits for organization in project management, this means in terms of project management they should be viewed as an effective management tool.

The planning as one of the main functions of project management requires the use of forecasts and forecasting information, as the developing of analyzes of past, present and future core trends suggests in the implemented project activities. The work, related to the development of analyzes and forecasts are essentially management activities of planning function and aim to assist project management. It should be noted that the information needed for planning does not end with the forecasting.

The literature indicates, that any forecast is developed by using social and economic analyzes. They are necessary for the management, planning and taking the right management decisions. The analyzes and forecasts are able to have an independent existence, role and importance in these areas. They can provide knowledge about the nature of development of the studied processes. Forecasting has to provide new information and in this case can be defined as process information system management, and as a tool for creating new information. [2, 19]

In project management analyzes and forecasts are also used in taking management decisions and have a role in informing the feasibility and benefits of a project. The purpose of analyzes and forecasts through them is to seek answers to questions, related to finances, resources, experience, the compliance of the project proposal to the specific needs and problems of the target region/organization, choosing the target group (groups) and determining its needs impact and results, with the relevant requirements of the financing instrument, est.

Yan Tinbergen determines the forecast as an assessment of future economic situation under the assumption of permanence of economic policy. He underlies that any forecast must be build on a large amount of assumptions regarding the mechanism of functioning of the economy and the most likely trends of amendment of the exogenous variables, while everyone who is concerned with forecasting is trying to build them on as much as possible more realistic assumptions, but still the forecast as a rule rarely coincide with the reality. He therefore considers that there is no reason to distinguish between the terms „forecast” and „project”. [2, 28]

As we are not accepting the foregoing position, we have to stick to the view that any forecast contains a level of uncertainty, as the project aims to fully excluded, although in practice each project is based on assumptions, which are based on it, which is considered for likely. The forecast gives alternatives and outlines the possible solutions, and the project specifies one of them which must be realized at given time, resources and scope. The forecast can be seen as a specific information-cognitive task, its solving gives information about possible future developments of the project object. The project can be discussed as a task, which realized the possible and desirable future through prerequisites for implementation of the received from most rational forecast option.

One of the conventional wisdom is that the forecast is set of scientifically sound statements in terms of possible future developments and state, as well as ways to archive it. The forecast is a concept, which is used to describe a future state or trend, which is estimated by the authors as expected, probably or most likely. It has a probabilistic nature and is based on scientific forecasting and can serve to consciously shape the future. The forecast may include disclosure and assessments of development goals, and ways to archive these objectives, include the necessary recourses for this time in different variants. [2, 26]

Corresponding to the above understanding is the perception of the forecast as a scientific judgment about the possible states of the object in the future, and for alternative routes and timing for its existence. The forecast in the system of management is considered for activity made before the plan with multivariate models for development of site management. Terms, workload, the numerical characteristics of the site and other indicators in the forecast give probabilistic nature and must provide possibility of amendment. [4, 180]

Big part of the concepts for the term „forecast” are based on the definition, given by the various sciences. Despite the many existing definitions all noted that the forecast is:

• –    it relates to the future, even not existing now processes;

• –    future processes and events are revealed on a basis of comprehensive and in-depth analysis and this analysis and conclusions from it are build on the knowledge of the objective laws, trends, mutual relationships and dependencies. [2, 28]

The forecast is possible when using a sufficient amount of information about the past and present of the examined system. As a sophisticated form of creativity it requires the existence and the relationship between the two main flow information: about the past and present of the studied system, processes and events. The scientific and practical significance of the forecast is determined by the quantity and quality of the available information for the past and current period and from efficiency of use analysis and modeling and experimentation. Each forecast is a system – collection of research, organizational events, and also can be talk about a system of forecasts of the major economic systems. [2, 30]

Viewed as a component of the process of managing projects, forecasts can be understood as providing knowledge and information, as well as a basis for decision – making for project activities. In project management can be used relatively simple, characterizing a state or trend forecast to such high complexity, reflecting the impact of many factors including quantifiable .Their use is determined by the scale and context, in which the project exist. In this aspect, forecasting can be seen as critical to the viability of the project, because appropriateness of its implementation is ensured by the high degree of predictive accuracy of the timing, cost and quality of results.

It seems to be appropriate such understanding, which makes the relationship between forecast and forecasting in the project management evident: „forecast includes assessing or predicting the conditions and events in the future of the project on the basis information and knowledge, accessible at the time of forecasting. The forecast is adjusted and corrected in the course of the project on the basis information for the execution of works. This information provides the picture of the effectiveness of the project in the past, which can affect the project in the future”. [3, 203] The given information allows relatively simply using the forecasting, because the time of occurrence of the forecast is determined clearly.

In the literature it is noted that forecasting of the success of project realization is made according to certain criteria and limitation. Because of the uniqueness of the project these criteria are not universal, but for most of the projects these are the objectives, duration, quality, and cost. If the forecast is negative, can take a decision to make a correcting effects, the selection of which is performed in the process of change management. [3, 48] We believe that the imposition of understanding for the project as something more than its material components and the research of its not material elements is very important for good forecasting. Thinking must be in a direction that a project should be managed not just tactically but also strategically. Its success, getting the desired business results and long term benefits should be measured and forecasted with something more than criteria for the „triple constraint”.

In this aspect can be noted, that many of the project results (social, environmental, demographic, scientific) occur after long enough time and don’t have a direct quantifiable aspect. This makes the assessment of the macroeconomic performance of the project difficult and requires particularly rigorous forecasting of its results. [1, 145 - 146]

It is important to note that according to some authors, management changes in the project itself is a process of planning and forecasting of future changes, registration of all possible changes (in the project scope, in its specification, in the value, plan, network schedule, etc.) for their detailed study, assessment of possible consequences, approvals or variations of such changes in the project, and also for coordination of contractors, implementing any changes in the project. [1, 286]

Common concepts in the literature associated with the forecast in project management, outline its place in forecasting:

• -    the dynamic of the surrounding project environment;

• -    before the plan development of assorted models of project development as an object of management;

• -    search for alternative sense about future state and progress of the project;

• -    subject area of the project;

• -     consequences of the planned activities;

• -      the progress of project activities;

• -      realization of the activities;

• -     usage of the budget.

In many projects, forecasting of the product as a result of the project activities is made outside the framework of the project. In others, for example in infrastructure projects for roads, preparation of the project include part of planned analysis „cost – benefit” (analysis of the context and goals of the project, technical-economical study and options analysis, financial analysis, economic analysis, risk assessment and other access to evaluation of the projects-cost analysis or effectiveness, multi-criteria analysis, economic impact analysis), including forecasts (traffic forecasts). It should be noted that is difficult to give an accurate forecast for cost and funds, in a big and complex projects. With them, even small errors can be very significant consequences. In other case for example the preparation of investment business project, planning include the use of methods as forecast of the net cash flow project and other activities, carried out by the applicant and the calculation of the prognostic indicators to assess the effectiveness of investment and financial indicators-net present value (NPV), internal rate of return (IRR), profitability index (PI), payback period (PBP).

In the process of dynamic investment forecasts more often are recorded only economic factors as determining the future results of the projects. In this particular group of factors (political, social, legal and others) and conditions, which has a very important impact of these results, are not taken into account. In case we have to make an impact of such factors on the realization of the project is necessary to conduct special studies and prepare statements, relating to the use of quality methods for analysis and forecasting. [1, 150]

In the literature are indicated many classifications of methods of forecasting. The practical use of one or another method is determined by such factors, as the object of the forecasts, accuracy, reliability, loyalty and sufficient background information, qualification of the person who prepares the forecast.

To the general principles of the forecasting belong discipline, complexity, continuity, diversity, relevance and efficiency. The principle of discipline requires interconnection between development of forecasts and forecasting background. The principle of continuity requires to discreetly correcting the forecasts with the addition of new data about the object of the project or for scientific –technical forecasting and the forecast background. The principle of adequacy of the forecast is characterized not only as an act, but as assessment of sustainable trends and relations. Its realization suggests reporting of forecasting character of real processes, current trends and assessment of the possibility of realization of the trend displayed. The principle of optimality suggests that as a result of optimizing the predictive values, effectiveness and cost, in relation to the criteria for maximizing the economic effect, the best alternative among many others should be chosen. [4,181 -182]

Forecasting is an action for development, establishment, and justification of forecast and as such is considered for a complex process and supreme explanation of creative thinking and as such is difficult to make a clear and exhaustive definition. It’s a subjective activity related to the capability of researches and politics to obtain information about future, for future changes, in the economic processes or indicators, which characterize them. Forecasting and its product forecasts, remarked by striving for scientific merit and use of different types of evidence for the possibility of obtain. Still, even imprecise forecasts are important as drawing attention to the existing problems. Forecasting reduces uncertainty in making the decision. From the point of the planning, forecasting is defined as a stage, activity, related to the evaluation of the possible trajectories and/or desired development. [2, 27] This can apply to the forecasting in project management.

From the analyses of the presented concepts it follows that the terminology similarity is not unexpected and is due to the fact that, the term „forecast” is realized by action on forecasting or indicating that the development of the forecast is realized with forecasting actions.

Therefore on the basis of the presented definitions can be said that the terms „forecast” and „forecasting” are associated with each other as events with material and procedural character. And also the term forecasting gives the dynamics of the relationship between them, meaning the appearance, modification and finalizing in archiving the final result, which is shown by the forecast.

In conclusion can be said, that the understanding and relationship between the forecast and forecasting in project management is important and must be improved at least for six reasons:

• -    reducing the discrepancy between the stated project goals and the real project results;

• -    connecting analytically project management and developing the strategic vision for evolution of the organization;

• -    playing the role as a benchmark for necessary actions;

• -    reducing uncertainty;

• -    expanding the horizons of the project outside the triad – term, cost and scope and practically opens new strategic opportunities for the organizations;

• -    having a mobilizing nature.