You are on page 1of 7

Steps in demand

forecasting
Forecasting is a systematic process of
predicting future demand for goods and
services. There are various stages of
demand forecasting as explained below:

1) Identification of objectives
The objectives must be cleared about
whether forecasting is short term or long term
Whether market share or industry as a whole
For the overall demand for a product or for firms own
product only
Whether for the whole product or only a part of the
product
the objectives of demand forecasting must be
determined before the process of forecast is started.
It is because the technique of demand forecasting are
different for different objectives.

2) Identification of demand
determination
For demand forecasting purpose, economist
classify the products in to three parts;
Durable goods : its determinants are time of uses,
composition and size of population, rate of
interest, credit facility, installment facility,
amount of 1st installment
Non durable goods: disposable income of the
consumer, price of related goods , price of same
goods , elasticity of demand etc.
Capital goods : profit of the firm, ratio of cost and
capacity of output , phase of trade cycle etc.

3) Collection of data
To forecast demand, data relating determinants of
demand should be collected.
Data can be obtained by survey, test marketing or
from existing sources ( such as historical records,
government publications etc.)
Time series or cross section data may be used in
forecasting
In time series data :particular market of different
time of each variable that influencing demand are
observed
In cross section data : different market at a
particular point of time is observed.

4) Selection of appropriate method


Survey method and statistical method
Selection of a particular method depends upon the
objectives of forecasting, nature of the product, availability
of data , urgency , available resources etc.
Some examples:
for short term forecasting survey method
For long term forecasting time series analysis and
regression analysis
For new project survey method
For old project statistical method
For immediate forecasting at lower cost- projection method
For high degree of accuracy more resources are required

5)Preparation of function and


interpretation
Function should be made by establishing
relationship between determinants of demand
and quantity demand.
It helps to easy to make the production schedule,
to manage inventory( stocks) , to formulate
marketing and pricing strategy and to take
decision.

6)Present result in readable form


The obtained result should be presented in a
readable form because management wants to get
final finding or actual forecast or its meaning and
implication.