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4.3 sales forecasting

sales forecasting
quantitative management technique used to predict a firm's level of sales over a given
time period

it is useful to a firm to help them identify probems and opportunities in advance

techniques
extrapolation

forecasting technique identifies the trend by using past data and extending this trend
to predict future sales

extrapolation works well if there is a clear correlation between two sets of numbers

time series analysis

data that are statistics which are recorded over time. the independent variable is time, and
the dependent is whatever is being recorded

helps in analyzing the past, which comes in handy to forecast the future

popular, because relatively inexpensive (easy to find)

seasonal variation

periodic fluctuations in sales revenues over a specified time period such as

months of the year

cyclical variation

recurrent fluctuations in sales linked to the economic cycle of booms and slumps

random variation

unpredictable fluctuations in sales revenues caused by erratic and irregular

factors that cannot be practically anticipated

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 market research

identifying and forecasting the buying habits of consumers can be vital to a firm's
prosperity and survival

sale forecasting methods:

accuract, time, cost and the stage in a product's life cycle

statistical techniques in sales forecasting

that are used to analyse sales forecasting data

mean

sum of all items divided by the number of items

median

when all numbers are ranked in numerical order, the middle number

mode

number that occurs more frequently

range

numerical difference between the highest and lowest value

standart deviation

the difference (digression) of a variable from the mean value

moving average
used to establish trends by eliminating the variations in the data set caused by seasonal,
cyclical and random variations - more accurate (but more time consuming)

3-point moving average

finding the mean for 3 data items, continuing 3 afterwards, writing the mean in
the middle

4-point moving average

finding the mean for 4 data items, continuing 4 afterwards, writing the mean in
the middle - more detailed

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 advantages disadvantages

provides data for comparision takes only numbers (quantitative)

closer intervals are better, variations are the predictions do not include other effects like
limited crisis
more relatable data time consuming

benefits and limitations

benefits limitations
- improved working capital and cash flow - limited information

- improved stock control, budgeting - inaccuracy of predictions

- improved productive efficiency - garbage in garbage out (GIGO)

- helps to secure external sources of finance - external influences

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