Traditional economic theory assumes a riskfree world of certainty; but the real world business is full of all sorts

of risk and uncertainty To cope with future risk and uncertainty, the manager needs to predict the future event. The likely future event has to be given form and content in terms of projected course of variables, i.e. forecasting. Demand forecasting is a specific type of business forecasting.

Prediction and Projection-both have reference to future The predicted event of business recession has to be established with reference to the projected course of variables like sales, inventory etc. Projection is of two types forward and backward.

Purpose of Short-term Forecasting

Appropriate scheduling of production to avoid problems of over production and underproduction. Proper management of inventories Evolving suitable price strategy to maintain consistent sales Formulating a suitable sales strategy in accordance with the changing pattern of demand and extent of competition among the firms. Forecasting financial requirements for the short period.

Purpose of long-term Forecasting

Planning for a new project, expansion and modernization of an existing unit, diversification and technological up gradation. Assessing long term financial needs. It takes time to raise financial resources. Arranging suitable manpower. It can help a firm to arrange for specialized labour force and personnel.

Accurate demand forecasting is essential for a firm to enable it to produce the required quantities A firm can maximize its profits only when it produces on the basis of the demand of its products. There will be no problem of over and under production if the figure of sales forecasts is accurate. As it will reduce or have control over costs, the profits will certainly go up.

Nature of Forecast 2. Nature of Product 3. Determinants of Demand 4. Analysis of Factors and Determinants 5. Choice of Techniques 6. Testing Accuracy
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Sample Survey Mehtod: Expert Opinions Poll Reasoned Opinion-Delphi Technique End user Method of Consumer Survey Complex Statistical Methods: Time Series Analysis or Trend Method Barometric Techniques or Lead or Leg Method Simultaneous Equations Method

Accurate demand forecasting requires Product knowledge Knowledge about the customer Knowledge about the environment