The information about the future is essential for both new firms and those planning to expand the scale of their production. Demand forecasting refers to an estimate of future demand for the product.

In long-term forecasting, the businessmen should now about the long-term demand for the product. Planning of a new plant or expansion of an existing unit depends on long-term demand.

Short-term demand forecasting is limited to short periods, usually for one year. It relates to policies regarding sales, purchase, price and finances. It refers to existing production capacity of the firm.