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SLE ECONOMICS

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SLE ECONOMICS

  1. 1. DEMAND FORECASTING Prepared By : Anushka Dhruv Jahan Arham Disha
  2. 2. DEMAND FORECASTING It is the activity of estimating the Quantity of the product or service that consumers will purchase. Past experience is analysed and demand forecasting is done on this basis.
  3. 3. All forecast are built on :  What people say:- Involves Surveying the opinions of buyeror those close to them.  What people do:- Putting the product into a test market to measure buyers response.  What People have done : Involves analysing records of past buying behaviour or using time series analysis or statistical demand analysis.
  4. 4. TYPES OF DEMAND FORECASTING  Passive demand forecasting: The demand of the previous years is extrapolatedand future demand is predicted on the basis. The impact of new policies on Dand can be analysed with this method.  Active demand forecasting: In this type the future demand is estimated by taking into account the impact of new policies and impact of its own plans and actions. This Type is considered better than passive forecasting.  Firm level demand forecasting: When the demand for the product of an individual firm is forecasted it is called firm level or micro forecasting.  Industry level demand forecasting: When the demand for the product of an entire industry is estimated it is termed as industry level forecasting.
  5. 5.  National level demand forecasting: It refers to the estimation of demand at the macro level i.e estimation of future demand for all goods produces in the economy.  Short term demand forecasting:If demand is forecasted for less than a year it is known as short term demand forecasting. It is useful to the business form for variety of purposes like price determination, determination of sales target  Long term forecasting: When demand forecasting is related to 5 years or more,it is said to be long term forecasting.It helps in diversification, financial planning,etc.  Medium term forecasting: If demand is forecasted for a period of one to five years,it is included under medium term forecasting. It is useful to plan promotional expenditure,modify designs and to bring quality improvements.
  6. 6. METHODS OF DEMAND FORECASTING  A) Survey method: (a)census survey method: under this method all the consumers of a product are questioned about the product it’s quality it’s type,etc. The future plans for the product, their reactions to changes in the price of the product, design, advertisement,etc are ascertained. This information this collected is analysed classified and tabulated. This is an expensive and time consuming process. When the number of consumers is large,this method cannot be used . (b)sample survey method:An Alternative to the census method is the sample survey method. From a large group of consumers, some of them are selected at random And they are interviewed about the demand for a product in future. This information is then processed and used for forecasting. This method is a Simple one and it is less time consuming and less expensive. To get good results,the sample selected should be representative of the population and should be selected at random to avoid bias.
  7. 7.  (B)Expert opinion method: In this method the opinion of experts are taken into account to predict the future demand for a product. The experts may be from within the organisation or hired from outside.Different methods are used to obtain experts opinion. One popular method is the Delphi technique. This methodsl involves the opinion of 3-4 experts.Each expert will be asked to give his opinion about the future demand. Then the opinion of other experts will be revealed to them and their view in reviewing their opinion in light of the comments from other experts will be obtained.  (C)Sales force opinion : Another method is to obtain the opinion is the sales force . The sales people are the ones who actually deal with the market and hence their opinion is sought. The opinion of all the sales people are summed up and then the information is used for forecasting. It is cheaper and easy to do. The problem is that the sales force may be biased.  Market experimentation: This method is also used by firms for demand forecasting sometimes survey method does not give the expected results. It is of two types namely test marketing and controlled experimentation. Under test marketing a particular area or region is selected. A new product will be introduced in this area and the behaviour of the consumers about the product will be judged. Under controlled experimentation a sample of the consumers for a product is selected and are asked to visit the nearby shopping store where various brands of the product will be displayed .
  8. 8. CHARACTERISTICS OF A GOOD FORECASTING METHOD !  Simplicity is an important characteristic of a good demand forecasting method. It should be easy to use and comprehend.  Accuracy is the next attribute. The method which can give the most accurate results is said to be the most reliable one. Past results of the method are ascertained and on that basis accuracy is determined and analysed.  Economy is another feature for demand forecasting method . Any method which involves least cost and at the same time gives good results is said to be the best method.
  9. 9.  The ability to give quick results is another requirement for a good method. If the method involves too many complexities, then it will not be preferred by business firms.  A good demand forecasting method should be flexible and it should be possible to adapt itself according to the requirement. While remaining flexible, it should be able to give quick results according to the requirements and at all times.  Planning: For the planning formulation of sales policy, price policy,etc forecasting is absolute necessary. Even for planning at the national level demand forecasting is used . It helps in fixing targets for saving, investment,etc. In short the future growth and diversification of a business firm depends upon demand forecasting.
  10. 10. SIGNIFICANCE OF DEMAND FORECASTING!  Fulfilling objectives: Every business unit starts with certain pre-determined objectives Demand forecasting helps in fulfilling these objectives.An organization estimates the current demand and services in the market.  Preparing the budget: It plays a crucial role in making budget by estimating costs and expected revenues.For instance the demand for the product is priced at RS 10/-would be 100000 units , the total revenue will be 10× 100000 units = RS 1000000 /-.In this way demand Forecasting helps organizations to prepare their budget .  Expanding Organizations : Demand forecasting helps in deciding about the expansion of the business of the organization.If the expected demand for products is higher , then the organisation may plan to expand , if the demand of a product is expected to fall , the organization may cut down the investment in the business.
  11. 11.  Taking management decisions : Helps in making critical decisions such as deciding the plant capacity, determining the requirement of raw material and ensuring the availability of Labour and capital .  Evaluating performance: It helps in making corrections.For example if the demand for an organization’s product is less,it may take corrective actions and improve the level of Demand by enhancing the quality of its products or spending more on advertisements .  Helping the government: It enables the government to import and export activities and plan international trade.

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