dt - dr. k.barani. chennai, kumbakonam, eng.eco

8/12/2019 dt - dr. k.barani. chennai, kumbakonam, eng.eco

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Methods of demand forecasting


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Prepared by :

Dr. K. BARANIDHARAN

PROF.MBA

SRI SAIRAM INSTITUTE OF TECHNOLOGY

CHENNAI

ENGINEERING ECONOMICS

AND

FINANCIAL ACCOUNTING

Sri Sairam Institute of Technology 3


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EngineeringEconomics& Financial

Accounting

Eefa

49 August 2014


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METHODS OF DEMAND FORECASTING

1.consumer opinion survey:

Survey of consumers or buyers intentions

rests on the belief that the best and the

most obvious way to gauge the demand for

a commodity is to take opinion of the users

of the product.

In consumers opinion survey buyers askedabout their future buying intention of

product, their and brand preferences and

quantities of purchases.


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i) CENSUS method:involves contracting each

and every buyer , but this very time taking and

costly and its often not desirable.

Ii) SIMPLE method: involves survey of only

representative sample of buyers.

Merits:

Simple, result obtained are realistic,

Demerits:

Expenses, unsuitable long term forecast


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SALES FORCE COMPOSIT

SALESPERSON are in direct contact with

the customers and hence are in a betterposition to F demand for any product.

Salesperson are asked about theirestimated sales targets in the

respective sales territories in a given

period of time.

The sum of total of such estimates

forms the basis of forecast demand.


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Merits:

Simple, it is very cost effective as no

additional cost is incurred on

collection of data, estimated figures

are more reliable Demerits;

Result is bias, salesperson unawareeconomic environment, short-term

only not long-term forecast


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EXPERTS OPINION METHOD

Fdis essentially based on theopinion of experts, either internal

or external to the firm.

GROUP DISSCUSSION;

Expert meet as a group to findout

future demand level. Meetings,

conference.


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Merits:

Decisions are enriched with the experience of

component experts. The firm need not spend time and resources in

collection of data by survey.

Very useful when the product is absolute new toall the markets.

Demerits:

The techniques relies more on the experience ofexperts than on available data, and may thus

involve some amount of bias.

Risk and loss of confidential


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MARKET SIMULATION It is like Laboratory testing of consumer

behaviour. Laboratory experiment can be useful is ascertaing

consumers, reactions to changes in price,

packaging etc., Merits;

Market experiments often provide useful

New product is best

Demerits:

Amount, time, money, spend

People behaviour entirely different


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TEST MARKETING

In test marketing the product is actually

sold in certain segment of the market,regarded as test market.

Merits:

Most reliable

Very suitable for new product

Less risk Demerits:

costly


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Trend Projection

A classical method trend projection is a

powerful statistical tool that is frequentlyused to predict future values of a a

variable on the basis of Time series data.

Components of Time series data:

Secular trend

Seasonal trend

Cyclical trend

Random events


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Merits:

Simple to apply

It is reliable in forecasting demand

Demerits:

The accuracy of trend projection

method depends on the availability of

time series data; the longer the series,the better the result

Past data not available


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Methods of trend projection

A) Graphical method: very simple but provides a

general indication and fails to predict futurevalue of demand.

B) Least square method:Least squares estimation

is based on the minimisation of squareddiviations between the best fitting line and the

original observation given.

C) ARIMA method:Auto Rrgressive IntegratedMoving Average, method has been given by Box

and Jenkins, therefore this method is also known

as Box Jenkins method.


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Moving average:

Weighted moving average

Exponential smoothing: assigns greater weights tothe more recent data.

Barometric techniques:

In barometric forecasting we construct an index of

relevant economic indicators and forecast future

trends on the basis of the indicators.

Merits: macro and micro economics- less costly

Demerits: it may not applicable for LTF


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ECONOMETRIC METHODS

Econometrics the social science in which

the tools of economic theory,

mathematics and statistical inference are

applied to the analysis of economicphenomena.

Two methods:

1. Regression Analysis

2. Correlation


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CONTROLLED EXPERIMENTS

Refers To Such Exercises where

some of major determinants of

demand are manipulated to suitto the customers with different

taste and preferences, incomegroups, and such others.


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JUDGEMENTAL APPROACH

Directly related to the given product or

service, the management has no alternative

other than using its own judgment.

Even when the above methods are used the

forecasting process is supplemented with the

factor of judgment for the following reasons:

Historical data for significantly long period isnot available.

Sales fluctuations are wide and significant.


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