Narsee Monjee Institute of Management Studies

NMIMS University

Introduction to Demand Forecasting

Dipankar De
Mumbai, July 2007

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 Demand Analysis

• “What is market potential for any new product?”

• “How much quantity the product would be demanded or sold?”

• “What are the factors that influence its quantity demanded?”

• Hence, the importance of demand analysis for the managers can be

briefly stated in two points:
– It provides insights necessary to effectively manipulate demand

– It helps forecast sales and revenues

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 Demand Forecasting

• Uncertainty in business environment makes decision making difficult & critical.

Forecasting is a critical tool for scientific decision making process in any business.
Forecasts help managers by reducing some of the uncertainties, thereby enabling
them to develop more meaningful plans.

• A forecast is a quantitative estimate (set of estimates) about the likelihood of

future events, which is developed on the basis of past & current information.

• In other words, a Forecast is a statement about the future value of a variable, such
as demand.

• Business forecasting pertains to more than predicting demand. Forecasts are also
used to predict profits, revenues, costs, productivity changes, prices, interest rates,
stock prices, movements of key economic indicators like GDP, inflation, exchange
rate, etc.

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 Steps in Forecasting

• The following steps are necessary for an efficient forecast:

1. Identification of objective: It is necessary to be clear about what one

wants to get from the forecast.

2. Determining the nature of goods under consideration: Different

categories of goods like consumer goods, durables and non-durables, have
their own characteristic and distinct demand patterns.

3. Selecting a proper method of forecasting: It is based on type of data

available, period for which the forecast is to be made, etc.

4. Interpretation of results: Efficiency of forecast depends, to a large extent,

upon the efficiency in the interpretation of its results.

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 Types of Data

1. Time-series data – refers to a time sequence of events with a specified

interval of time

2. Cross-section data – represent a snapshot of many different

observations taken at a given time.

3. Panel data – refers to the cross-section data with the same sample at
different periods of time.

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Various Methods of Forecasting