Sales forecasting in the construction market
Published by Leading Edge Management Consultancy
August 2009
www.lead-edge.co.uk

What is sales forecasting?
Sales forecasting is the prediction of future events and conditions
There are typically two types of events
G Uncontrollable external events eg rate of interest changes
G Controllable internal events eg new product launch
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The important relationship between sales forecasts and
budgets
To develop a robust sales forecast you need to understand the external market
conditions and future market trends.
Appropriate strategies can then be developed.
Budgets are then the output of this process. Budgets should not form the starting
point for a sales forecast but are the result of a sales forecast and will
include, for example, production / output capacity, stock levels, number of
employees required, investment levels, marketing spend
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Forecasting models
At Leading Edge we use
G Forecasting models can be split into 3 groups
all 3 models to help
² Quantitative – time series
companies forecast
² Quantitative - causal models
sales or market size
² Qualitative – opinions
G Time series models – use historical data as a means of forecasting future
outcomes and assume past patterns in data can be used to forecast future
data points
G Causal forecasting models – based on the relationship between the variable
to be forecast (eg sales) and an independent variable (eg rate of interest or
construction output). They are often regression type models although others
can be used
G Qualitative forecasting – based on the educated opinions of selected persons.
Information can be collected, for example, via panels or questionnaires from
selected respondents with a knowledge of the market, sector or company
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Forecasting software
G Excel has a number of built in capabilities that can be used to
develop a basic forecasting model that will suit many companies
G There are also specialist forecasting software packages available that
help in the statistical analysis and presentation of the results
G At Leading Edge we use both Excel and our specialist software,
depending on the requirements of the client and the complexity of
the job
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Creating a company sales forecast
A combination of both top down and bottom up forecasts will often produce the
best results. The forecasts can be made using the qualitative or quantitative
techniques previously discussed.
TOP DOWN FORECAST
OR
BOTTOM UP FORECAST
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Creating a company sales forecast
- the top down approach
Macroeconomic forecast Quantitative and
qualitative techniques
can be used to develop
industry and company
sales forecasts
Construction industry / product sales forecast (eg Leading Edge or CPA)
Company sales forecast
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Creating a company sales forecast
- the bottom up approach
Quantitative and
qualitative techniques
Company sales forecast can be used to develop
the company sales
forecast. Time series is
typically more practical
when forecasting at a
detailed level eg
product lines
Your forecast will typically take account of the following factors:
new products new competitors customer forecasts
last year’s sales new routes to market deleted products
key contracts starting / finishing rolling 12 months sales
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Comparison of forecasts with actual output
G In March 2009 the Office of National Statistics released its provisional
figures for construction output for 2008. In 2000 terms, the figure
was £82,129m which was a fall of 0.4% on 2007.
G At Leading Edge we issue a 6 monthly, 5 year forecast on
construction output levels – the following paragraph compares our
forecast with actual outcome.
G Leading Edge Forecasts for Construction Output 2008 in 2000 terms
² Actual 2008: £82,129m
² Jun 2006 forecast: £83,532m (+1.7% on 2008 actual)
² Dec 2006 forecast: £84,754m (+3.1% on 2008 actual)
² Jun 2007 forecast: £82,314m (+0.2% on 2008 actual)
² Dec 2007 forecast: £81,130m (-1.2% on 2008 actual)
² Jun 2008 forecast: £77,727m (-5.4% on 2008 actual). Based on one quarter actual
data
² Dec 2008 forecast: £81,339m (-0.9% on 2008 actual). Based on three quarters
actual data
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Examples of construction data available to help sales
forecasting
Housing data
G HBOS Economic and housing reports
G Nationwide housing statistics
G NHBC housing statistics
G DCLG housing statistics
G Rightmove House Price Index
G Council of Mortgage Lenders
G Land Registry
G Property data from RICS
Economic data
G Office of National Statistics - Construction orders
G Office of National Statistics - Construction output
G Bank of England inflation and economic reports
G CEBR economic forecasts
G Country data & projection from the OECD
G FT stock market & exchange rate data
G State of trade surveys from the Federation of Master Builders
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Construction forecasts
There are several market forecasts issued for the construction sector.
These include Leading Edge and the Construction Products Association
which both provide historical and forecast construction output in £m for
the following subsectors:
G Housing
G Commercial
G Public
G Industrial
G Infrastructure
G R&M – housing
G R&M – non housing
In addition, Leading Edge provide forecasts for the following building
materials:
G Cementitious materials
G Ready mixed concrete
G Bricks
G Concrete blocks
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Leading Edge’s recent experience in forecasting
G Case Study
² In one recent project, carried out for a leading player in the construction
industry, we successfully analysed the relationship between construction
industry output and orders and sales of the company's products and
services. As a result, the company will be better placed to estimate likely
changes in sales levels across their product services based on our
industry forecasts
G How we can help you
² As well as a detailed understanding of the industry gained through
carrying out numerous construction industry market research projects,
we have the specialist software and expertise needed to carry out the
detailed statistical analysis that is necessary and put it to practical use
² A project to analyse the effect on your company's sales of construction
industry new orders and construction output can be carried out quickly
and at a very reasonable cost. You only need to supply your historical
sales data in an agreed format - we already have the industry data ready
to hand. We will analyse your data and present the results to you in an
understandable way. Assuming meaningful relationships are identified we
can then supply you with a simple system in Microsoft Excel to enable
you to perform your own forecast projections.
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“It is far better to foresee even without certainty than not to foresee at all”
Henri Poincare, The Foundations of Science
“Forecasting is very difficult – especially if its about the future”
Nils Bohr, Nobel laureate in Physics
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Leading Edge ……………delivering a better understanding
of customers and markets in the construction and
building materials sector
If you would like to discuss your forecasting
requirements then please contact us on
01189 797800
www.lead-edge.co.uk
leadingedge@lead-edge.co.uk
www.lead-edge.co.uk