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Demand Forecasting

Demand Forecasting

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Published by: प्रशांत कुशवाहा on Sep 14, 2010
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DEMAND FORECASTING

Learning Objectives
1. Make a comprehensive study of the conditions under which the firm is operating. 2. Have proper knowledge of both survey methods and statistical methods 3. Adopt suitable method to make accurate forecasts 4. Use commonsense mainly ,without relying too much on any one of the methods to arrive at right conclusions.

Demand Forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting may be used in making pricing decisions, in assessing future capacityrequirement s, or in making decisions on whether to enter a new market.

IMPORTANT FEATURES OF DEMAND FORECASTING ‡It is basically a guess work. ‡It is in terms of specific quantities ‡It is undertaken an uncertain atmosphere ‡A forecast is made for a specific period of time ‡It is based on historical information and the past data ‡It tells us only the approximate demand for a product in future ‡It is based on certain assumptions. ‡It can not be 100% precise.

‡MANAGERIAL USES OF DEMAND FORECASTING (In the short Run) ‡PRODUCTION PLANNING ‡HELPS IN FORMULATE RIGHT PURCHASE POLICY ‡HELPS TO FRAME REALISTIC PRICING POLICY ‡SALES FORECASTING ‡HELPS IN SHORT RUN FINANCIAL REQUIREMENTS ‡REDUCE THE DEPENDENCE ON CHANCES ‡HELPS TO EVOLVE A SUITABLE LABOUR POLICY

In The LONG Run
‡BUSINESS PLANNING ‡FINANCIAL PLANNING ‡MANPOWER PLANNING ‡BUSINESS CONTROL ‡DETERMINATION OF THE GROWTH RATE OF THE FIRM ‡ESTABLISHMENT OF STABILITY IN THE WORKING OF THE FIRM ‡INDICATES INTERDEPENENCE OF DIFFERENT INDUSTRIES

IN THE LONG RUN
‡Business Planning ‡Financial Planning ‡Manpower planning ‡Business control ‡Determination of the growth rate of the firm ‡Establishment of stability in the working of the firm. ‡Indicates interdependence of different industries.

CRITERIA FOR GOOD DEMAND FORECASTING

ACCURACY

PLAUSIBILITY

SIMPLICITY

DURABILITY

FLEXIBILITY

‡AVAILIBILITY OF DATA ‡ECONOMY ‡QUICKNESS

LEVELS OF DEMAND FORECASTING

‡MICRO LEVEL ‡INDUSTRY LEVEL ‡MACRO LEVEL

METHODS OF DEMAND FORECASTING

SURVEY METHODS

STATISTICAL METHODS

1.CONSUMER INTERVIEW METHOD a. Survey of buyers intentions b. Direct interview method ‡ Complete enumeration method ‡ Sample Survey method 2.Collective opinion method 3. Expert opinion method 4.End use method

1.Trend projection method 2.Economic indicators

Length of forecasts
Short-term forecasts ² upto 12 months, eg., sales quotas, inventory control, production schedules, planning cash flows, budgeting.

Medium-term ² 1-2 years, eg., rate of maintenance, schedule of operations, budgetary control over expenses.
Long-term ² 3-10 years, eg., capital expenditures, personnel requirements, financial requirements, raw material requirements.

Presentation of a forecast to the Management
In presenting a forecast to the management, a managerial economist should: 1. Make the forecast as easy for the management to understand as possible. 2. Avoid using vague generalities. 3. Always pin-point the major assumptions and sources. 4. Give the possible margin of error. 5. Avoid making undue qualifications. 6. Omit details about methodology and calculations. 7. Make use of charts and graphs as much as possible for easy comprehension.

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