2.2.1 : Sales Forecasting Flashcards
Why should businesses produce sales forecast ?
Provides a human resource plan : how many people we need linked with expected output
Production/capacity plans
Cash flow forecasts
Profit forecasts and budgets
Useful for competitor analysis and helps to focus market research
What is extrapolation ?
Uses trends established from historical data to forecast the future
What is extrapolation ?
Uses trends established from historical data to forecast the future
What is a moving average and how does it work ?
A moving average takes a data series and ‘smooths’ the fluctuations in data to show an average
The aim is to take out the extremes of data from period to period
Factors affecting extrapolation on a sale off product or service ?
Product life cycle
Pace of technological innovation
Growth of the global economy
Rise of the middle class in emerging economies
Market saturation
What are the benefits of using extrapolation ?
A simple method of forecasting
Not much data required
Quick + cheap
What are the drawbacks of using extrapolation ?
Unreliable if there are significant fluctuations in historical data
Assumes past trend will continue into the future
Ignores qualitative factors
What is a confidence interval ?
Gives the percentage probability that an estimated angle of possible values in fact includes the actual value being estimated
How do confidence intervals work in a business ?
It helps a business evaluate the reliability of a particular estimate
Because estimates can’t be 100% reliable people need a level of confidence in there assumptions
What are the key factors affecting sales forecast ?
Consumer trends
Economic variables
Competitor actions
What circumstances will sales forecast be inaccurate ?
Business is a new start up
Market subject to significant disruption from technological change
Demand is highly sensitive to changes in price + income
Product is a fashion item
Significant changes in market share
