Program Name : BBA (FSnB)

Semester : 3rd
Course Name: Project Management
Course Code: BBA/II/305
Faculty Name: Shiwangi Sharma
Designation: Assistant Professor
Department : Management
 UNIT -2
O Topic Name-Market and demand analysis
O Contents of Topic – The topic will give a detail
idea about the market and demand analysis,
steps involved in it and demand forecasting
technique, risk analysis, and market study.
O Learning Outcome- Students will get a fair
idea about how market and demand analysis is
done, what are the different techniques,
forecasting techniques, risk analysis.
 Introduction
The first step in project analysis is to estimate the potential size of the
market for the product proposed to be manufactured (or services) and get
an idea about the market share that is likely to be captured.
Market and demand analysis is concerned with 2 broad issues –
1. What is likely aggregate demand for the product/service? Which is
checked through pattern of consumption of growth, price elasticity
of demand,
2. What share of the market will the proposed project enjoy? This is
checked through composition of market, availability of substitute,
reach of distribution channels, nature of competition.
 Two driving forces are -
1. The market is attractive
2. The demand is expected to exceed supply.
 Key steps in market and demand
analysis and their inter-relationship
 Objectives
1. Relationship between customers,
competitors, middlemen and others in the
industry are checked.
2. Customers preferences and purchasing
power, actions, strategies of competitors and
practices of middlemen are analyzed.
 1. Situational analysis and
specification of objectives
O If such a situational analysis generates enough data to measure the market and
get a reliable handle over projected demand and revenues a formal study can
be carried out as per the time and cost demands.
O To do the aforesaid concerns, objectives should be clearly defined. This helps
in expanding the situational analysis by expanding it with greater clarity.
O The concerns that are checked –
1. Buyers of the product.
2. Demand of the product
3. How the demand is distributed temporally and geographically?
4. Break-up of demand for different dimensions of the product.
5. How to convince the superiority of the product?
6. Price and warranty
7. Channels of distribution
8. Prospects of immediate sales.
 2. Collection of Secondary information
O In order to describe the objectives of the market study, information must be collected from
secondary/primary sources.
O Secondary information is the information that has been gathered in some other context and is
already available. This provides the base and the starting point for the market and demand
analysis. It indicates what is known and often provide leads and cues for gathering primary
information required for further analysis.
O Primary information, represents information that is collected for the first time to meet the
specific purpose on hand.
O General sources of Secondary information are – Census of India, National sample survey
reports, Plan reports, Statistical abstract of the Indian Union, India Year Book, Statistical year
book, economic survey, guidelines to industries, annual survey of industries, Annual report of
the development wings, ministry of commerce and industry, annual bulletin of statistics of
export and import, Techno-economic survey, industrial potential survey, the stock exchange
directory, monthly studies of production of selected industries, monthly bulletin of Reserve
Bank o f India, publications of advertising agencies, other publications, corporate databases,
industrial associations, consultancy firms, World Bank, Brokerage report, and industry specific
reports (Annual report of organization of Pharmaceuticals producers of India, Annual report of
Indian electrical manufacturers association, etc).
 Evaluation of secondary
information
O While secondary information is available economically and readily its
reliability, accuracy, and relevance for the purpose under consideration must
be carefully examined. Points to be checked are –
1. Who gathered the information? What was the objective?
2. When was the information gathered? When was it published?
3. How representative was the period for which the information was gathered?
4. Have the terms in the study carefully and unambiguously defined?
5. What was the target population?
6. How was the sample chosen?
7. How representative was the s ample?
8. How satisfactory was the process of information gathering?
9. Was statistical analysis properly applied?
10. How accurately was the information edited, tabulated, and analyzed?
 3. Conduct of market
Survey
O Secondary information although gathered carefully, yet it has to be
supplemented by primary information through market survey (Census survey or
Sample survey).
O The information gathered gives information about following points –
1. Total demand and rate of growth of demand.
2. Demand in different segments of the market
3. Motives for buying Purchasing plans and intention
4. Socio-economic characteristics of buyer
5. Satisfaction of existing products
6. Attitudes towards various products
7. Purchasing plans and intention
8. Income and price elasticity's of demand
9. Unsatisfied needs
10. Distributive trade practices and preferences
 Steps in Sample survey
1. Define the target population
2. Select the sampling scheme and sample size
3. Develop the questionnaire
4. Recruit the train and field investigators
5. Obtain information as per the questionnaire
from the sample of respondents
6. Scrutinize the information gathered
7. Analyze and interpret the information
Characterization of the market
Based on the information gathered from secondary
sources and through the market survey the market of
the product/services may be described in the terms
of the following –
1. Effective demand in the past and present- To
measure the effective demand in the past and
present, the starting point typically is apparent
consumption which is defined as:
Production+ imports – exports – changes in the
stock level.
 Continued….
2. Break down of demand – To get a deeper
insight of the nature of demand, the
aggregate(total) market demand may be broken
down into demand for different segments of the
market. Market segments may be defined by –
i. Nature of Product
ii. Consumer Groups
iii. Geographical division
 Continued…
3. Price – Price statistics must be gathered along with
statistics pertaining to physical quantities. It may be
helpful to distinguish the following types of prices
i. Manufactures price quoted as FOB (Free on
board) price or CIF (Cost, insurance and freight)
price
ii. Landed price for imported goods
iii. Average wholesale price
iv. Average retail price
 Continued…
4. Methods of distribution and sales
promotion – The methods of distribution may
vary with the nature of product. Capital goods,
industrial raw materials or intermediaries and
consumer products tend to have differing
distribution channel. Similarly, methods used for
sales promotion (advertising, discounts, gift
schemes, etc.) may vary from product to
product.
 Continued….
5. Supply and Competition – It is necessary to
know the existing sources of supply and whether
they are foreign or domestic. For domestic
sources of supply, information along with
following lines may be gathered: location,
present production capacity, planned expansion,
capacity utilization level, bottlenecks in
production, and cost structure.
 Continued….
O Government policy – The role of government in influencing demand and market
for a product may be significant. Government plans, policies, and legislations and
fiats which have a bearing on the market and demand for the product under
examination should be spelt out. These are reflected in:
1. Production targets in National plan
2. Import and export trade controls
3. Import duties
4. Export incentives
5. Excise duties
6. Sales tax
7. Industrial licensing
8. Preferential purchase
9. Credit controls
10. Financial regulations
11. Subsidies and penalties of various kinds.
 Market planning
O A market planning explains what activities need
to be done to bring more awareness to a product
or service. However, to successfully implement
it we need project management methods.
O In order to enter the market and achieve
predetermined objectives an appropriate
marketing plan must be developed covering all
aspects related to product, price, place and
promotion. It involves the following steps -
Steps involved in marketing plan
 Demand Forecasting
After gathering information about various
aspects of the market and demand from primary
and secondary sources, an attempt may be made
to estimate future demand. A wide range of
forecasting methods is available to the market
analyst. These maybe classified as -
Methods of Demand Forecasting
1. Qualitative Methods - These methods rely essentially on the judgment of experts to
translate qualitative information into quantitative estimates. The important qualitative
methods are –
O Jury of Executive Opinion Method – This method is very popular in practice,
involves asking the opinions of a group of managers on expected future sales and
combining them into a sales estimate.
Advantages –
1. It is an expeditious method for developing a demand forecast.
2. It permits considerations of variety of factors like economic climate, competitive
environment, consumer preferences, technological developments, and so on, to be
included in the subjective estimates provided by the experts.
3. It has immense appeal to managers who tend to prefer their judgment to automatic
forecasting procedures.
Disadvantages –
1. The biases underlying subjective estimates cannot be extracted easily.
2. The reliability of this technique is questionable.
 Continued….
O Delphi Method – This method is used for drawing the opinions of a group of
experts with the help of a mail survey. The steps involved in this method are –
1. A group of experts is sent a questionnaire by mail and asked to express their
views.
2. The responses received from the experts are summarized without disclosing
the identity of the experts, and sent back to the experts, along with the
questionnaire meant to probe further the reasons for extreme views expressed
in the first round.
3. The process may be continued for one or more till reasonable agreement
emerges in the views of the experts.
Delphi method appeals to many organizations for the following reasons:
i. It is clear to users.
ii. It has fancy name
iii. It seems to be more accurate and less expensive that the traditional face-to-
face group meetings.
2. Time Series Projection Methods
O These methods generate forecasts on the basis of an analysis of the
historical time series. The important time series projection methods are
–
A. Trend projection method – The trend projection method involves –
a) Determining the trend of consumption by analyzing past consumption
statistics
b) Projecting future consumption by reasoning the trend.

When trend projection is studied, the most commonly employed

relationship is the linear relationship –
Yt = a+bt
Yt is the demand for year t, t is the time variable, a is the intercept of the
relationship, and b is the slope of the relationship.
B. Exponential smoothing method
O Exponential smoothing is a time series forecasting
method for univariate data.
O In this the forecasts are modified in the light of
observed errors.
O Forecasts produced using exponential smoothing
methods are weighted averages of past
observations, with the weights decaying
exponentially as the observations get older. In
other words, the more recent the observation the
higher the associated weight.
Types of Exponential smoothing
method
1. Single exponential smoothing - Single Exponential Smoothing, SES for short,
also called Simple Exponential Smoothing, is a time series forecasting method for
univariate data without a trend or seasonality. It requires a single parameter,
called alpha (a), also called the smoothing factor or smoothing coefficient. The
value of alpha is set between 0 and 1.
2. Double exponential smoothing - Double Exponential Smoothing is an extension
to Exponential Smoothing that explicitly adds support for trends in the univariate
time series.In addition to the alpha parameter for controlling smoothing factor for
the level, an additional smoothing factor is added to control the decay of the
influence of the change in trend called beta (b).
3. Triple exponential smoothing - Triple Exponential Smoothing is an extension of
Exponential Smoothing that explicitly adds support for seasonality to the univariate
time series. This method is sometimes called Holt-Winters Exponential Smoothing,
named for two contributors to the method: Charles Holt and Peter Winters. In
addition to the alpha and beta smoothing factors, a new parameter is added
called gamma(g) that controls the influence on the seasonal component.
C. Moving average Method
O A moving average is a technique to get an overall idea of
the trends in a data set; it is an average of any subset of
numbers. The moving average is extremely useful
for forecasting long-term trends.
O You can calculate it for any period of time. For example,
if you have sales data for a twenty-year period, you can
calculate a five-year moving average, a four-year moving
average, a three-year moving average and so on. Stock
market analysts will often use a 50 or 200 day moving
average to help them see trends in the stock market and
hopefully forecast where the stocks are headed.
Year Sales ($M)

2003    4

2004    6

2005    5

2006    8

2007    9

2008    5

2009    4

2010    3

2011    7

2012    8
 Calculation
O The mean (average) sales for the first five years (2003-
2007) is calculated by finding the mean from the first five
years (i.e. adding the five sales totals and dividing by 5).
This gives you the moving average for 2005 (the center
year) = 6.4M: (4M + 6M + 5M + 8M + 9M) / 5 = 6.4M
O The average sales for the second subset of five years
(2004 – 2008), centered around 2006, is 6.6M:
(6M + 5M + 8M + 9M + 5M) / 5 = 6.6M
O The average sales for the third subset of five years (2005
– 2009), centered around 2007, is 6.6M:
(5M + 8M + 9M + 5M + 4M) / 5 = 6.2M
 3. Causal Methods
More analytical than the preceding methods, causal
methods seek to develop forecasts on the basis of cause-
effect relationships specified in an explicit, quantitative
manner. The important causal methods are –
a) Chain Ratio Method
b) Consumption level method
c) End use method
d) Bass diffusion model
e) Leading indicator method
f) Econometric method
 a) Chain Ratio Method
An estimation method used by multiplying a base number by a
chain of related percentages. It is frequently used in marketing to
estimate the size of a target market.
How many TVs are in the US?

Method:
1. There are the roughly 300 million people in the US (This is the
base number).
2. There are roughly 4 people per household: 300,000,000/4 =
75,000,000 households.
3. There are roughly 2 TVs per household: 75,000,000 * 2 =
150,000,000 TVs.
Answer: 150 million TVs.
b) Consumption level method
O Useful for a product which is directly consumed, this method estimates consumption
level on the basis of elasticity coefficients, the important ones being the –
a) Income elasticity of demand –
EI = Q2-Q1 x I1+I2
I2- I1 Q2+Q1
E1 = Income elasticity of demand
Q1 = Quantity demanded in the base year
Q2 = Quantity demanded in the following year
I1 = Income level in the base year
I2 = Income level in the following year
b) Price elasticity of demand - Ep = Q2-Q1 x P1+P2
P2- P1 Q2+Q1
Ep = Price Elasticity of demand
Q1= Quantity demand in the base year
Q2 = Quantity demand in the following year
P1 = Price per unit in the base year
P2 = Price per unit in the following year
 c) End Use Method
It is suitable for estimating the demand for
intermediate products. It is also called as
Consumption Coefficient Method it involves
following steps –
1. Identify the possible uses of the product
2. Define the consumption coefficient of the product
for various uses
3. Project the output levels for the consuming
industries
4. Derive the demand for the product
d) Bass Diffusion Model
O The Bass Model or Bass Diffusion Model was developed
by Frank Bass. It consists of a simple differential
equation that describes the process of how new products get
adopted in a population. The model presents a rationale of
how current adopters and potential adopters of a new
product interact. The basic premise of the model is that
adopters can be classified as innovators or as imitators and
the speed and timing of adoption depends on their degree of
innovativeness and the degree of imitation among adopters.
O The Bass model has been widely used in forecasting,
especially new products sales forecasting and technology
forecasting.
 e) Leading indicator
method
O A leading indicator is any economic factor that
changes before the rest of the economy begins to
go in a particular direction. Leading indicators
help market observers and policymakers predict
significant changes in the economy.
O It involves 2 basic steps –
1. Identify the appropriate leading indicator
2. The lead-lag relationship may not remain
stable over time
 f) Econometric Method
It is a mathematical representation of economic relationships derived
from economic theory. The primary objective of econometric analysis
is to forecast the future behavior of economic variables incorporated
in the model. It involves 4 broad steps –
1. Specification – This refers to the expression of an economic
relationship in a mathematical form.
2. Estimation – This involves the determination of the parameter
values and other statistics by a suitable method such as the least
square method
3. Verification – It is concerned with accepting or rejecting the
specification on the basis of result of estimation
4. Prediction – It involves projection of the values of the explained
variables.
 Uncertainties in demand
forecasting
Demand forecasts are subject to error and uncertainty which arises
from 3 principle sources are –
1. Data about past and present market – The analysis of past and
present market, which serves as the facilitator for the projection
exercise, are caused by the following inadequacies of data –
O Lack of standardization – Data pertaining to the market features
like product, price, quantity, cost, income, etc. may not reflect
uniform concepts and measures.
O Few Observations – Observations available to conduct meaningful
analysis may not be enough.
O Influence of Abnormal Factors – Some of the factors may be
influenced by abnormal factors like natural calamities, war, etc.
2. Methods of forecasting
O Inability to handle unquantifiable factors – Most
of the forecasting methods, quantitative in nature,
cannot handle unquantifiable factors which
sometimes can be of immense significance.
O Unrealistic Assumptions – Each forecasting
method is based on certain assumptions.
O Excessive data requirement – The more advance
the method is the greater the data requirement
will be.
3. Environmental Changes
The environment in which a business functions
is characterized by numerous uncertainties-
1. Technological change
2. Shift in government policies
3. Development on the international Scene
4. Discovery of new sources of raw material
5. Vagaries of Monsoon
 RISK
ANALYSI
S
 Introduction
O Risk is inherent in almost all the business decisions. Mainly in
capital budgeting decisions as they involve cost and benefit
extending over a long period of time during which many things
can change in unanticipated ways.
O Risk analysis is one of the most complex and slippery aspects of
capital budgeting. Many different techniques have been suggested
and no single technique can be deemed as best in all situations.
O The variety of techniques suggested to handle risk in capital
budgeting fall into 2 broad categories –
1. Techniques that consider the stand-alone risk of a project.
2. Techniques that consider the risk of a project in the context of
the firm or in the context of the market.
 SOURCES OF RISK
O There are several sources of risk of a project. The important ones are project-
specific risk, competitive risk, industry-specific risk, market risk, and
international risk.
O Project-specific risk - The earnings and cash flows of the project may be lower
than expected because of estimation error or due to some other factors specific
to the project like quality of management.
O Competitive risk – The earnings and cash flows of the project may be affected
by unanticipated actions of the competitors.
O Industry-specific risk – Unexpected technological developments and regulatory
changes, that are specific to the industry to which the project belongs, will have
an impact on the earnings and cash flows of the project as well.
O Market risk – Unanticipated changes in macroeconomic factors like the GDP
growth rate, interest rate, and inflation have an impact on all projects.
O International risk – In case of a foreign project, the earnings and the cash flows
may be different than expected due to the exchange risk or political risk.
 MEASURES OF RISK
O Risk refers to variability. It is a complex and
multi-faceted phenomenon. A variety of
measures have been used to capture different
facets of risk. The more important ones are –
1. Range
2. Standard Deviation
3. Coefficient of variation
4. Semi-variance
 The steps of risk analysis
A good way to analyze risks follows several steps to help you clearly
identify the risks and the management strategies you need to avoid them. 
The steps are the following: 
O Elaborate a risk management plan to identify management process,
each stakeholder's role in the project...
O Identify global risks for the whole project
O Analyze risks to determine which ones are the most important
O Elaborate strategies to handle the most important risks effectively
O Estimate costs and benefits of the strategies to determine if they're
viable
O Implement the strategies
O Assess the results and document them to increase the level of
knowledge for these risks
 Coping up with risk
1. Conduct analysis with data based on uniform and standard definition
2. In identifying trends, coefficients, and relationships, ignore the
abnormal or out-of-the-ordinary observation.
3. Critically evaluate the assumptions of the forecasting methods and
choose a method which is appropriate to the situation.
4. Adjust the projection derived from the quantitative analysis in the
light of the unquantifiable but significant influences
5. Monitor the environment imaginatively to identify important changes
6. Consider likely alternative scenarios and their impact on the market
and competition
7. Conduct sensitivity analysis to assess the impact on the size of the
demand for unfavorable and favorable variations of the determining
factors from their most likely levels.
 References
O Project by Prasanna Chandra Page – 4.1 to
4.30
O https://bbamantra.com/market-and-demand-an
alysis
/
O https://www.mybeeye.com/en/management-to
ols/risk-analysis#:~:text=In%20project%20ma
nagement%2C%20risk%20analysis,or%20to
%20reduce%20their%20likelihood.
 Contact me at …
O Email I’d – shiwangi.sharma@acem.edu.in
O Contact no. – 9549444961.