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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