Sales

forecasting
and
budgeting
Nguyễn Thị Bích Trâm, PhD
Tram.ntb@ou.edu.vn
 Short-term forecasts: up to
three months

Medium-term forecasts:
Planning one year ahead

Long-term forecasts: three

years and upwards
Purposes of sales
forecast
• Production planning
• Purchase from production via purchase
requisitions or bills of material
• Staffing planning
• Sales budgetary and financial planning
• Research and development (R&D)
• Sales strategies and promotional plan
Sales forcasting methods
Qualitative techniques:
• Consumer/user survey method
• Panels of executive opinion
• Salesforce composite
• Delphi method
• Product testing and test marketing
Quantitative techniques
• Time series analysis:
• Naïve forecast
• Simple moving average
• Weighted moving average
• Exponential smoothing
• Linear trend forecast
• Causal techniques:
• Simple linear regression forecast
• Multiple regression forecast
Qualitative techniques

• Consumer/user survey method

• Panels of executive opinion
• Salesforce composite
• Delphi method
• Product testing and test marketing
 Naïve forecast

Simple moving average

Time series
forecasting Weighted moving average

models
Exponential smoothing

Linear trend forecast

Naïve forecast
Simple moving average
forecast
Example
Weighted moving average
Exercise

• Calculate the forecast for

period 5 using a four-period
weighted moving average.
The weights of 0.4, 0.3, 0.2
and 0.1 are assigned to the
most recent, second most
recent, third most recent, and
fourth most recent periods,
respectively
Exponential smoothing forecast

(See Example
5.3)
Exercise

• Calculate the forecast for

period 3 using the
exponential smoothing
method. Assume the
forecast for period 2 is
1600. Use a smoothing
constant (α) of 0.3
Exercise
Linear Trend Forecasting

• A linear trend forecast can be estimated using simple linear

regression to fit a line to a series of data occurring over time. This
model is also referred to as the simple trend model. The trend
line is determined using the least squares method, which
minimizes the sum of the squared deviations to determine the
characteristics of the linear equation.
• The trend line equation is expressed as: Ŷ = b0 + b1x
• Where Ŷ = forecast or dependent variable; x = time variable; b0
(See Example
= intercept of the vertical axis; b1 = slope of the trend line.
5.4)
Quantitative methods (cont.)

• Cause-and-effect forecasting assumes that one or more

factors (independent variables) are related to demand and,
therefore, can be used to predict future demand.
• Simple linear regression forecast
• Multiple regression forecast
Simple linear regression forecast

• x variable is no longer time but instead an explanatory variable of

demand. For example, demand could be dependent on the size of the
advertising budget. The regression equation is expressed as:
• Ŷ = b0 + b1x
• Where Ŷ = forecast or dependent variable;
• x = explanatory or independent variable;
• b0 = intercept of the vertical axis; b1 = slope of the regression line
Multiple regression forecast

• When several explanatory variables are used to predict the dependent

variable, a multiple regression forecast is applicable. Multiple regression
analysis works well when the relationships between demand (dependent
variable) and several other factors (independent or explanatory variables)
impacting demand are strong and stable over time.
• The multiple regression equation is expressed as: Ŷ = b0 + b1x1 + b2x2 + … +
bkxk
• Where Ŷ = forecast or dependent variable; xk = kth explanatory or
independent variable; b0 = constant; bk = regression coefficient of the
independent variable xk.
The
budgetary
process