3.3.1 Quantitative sales forecasting

Question 1

what is quantitative sales forecasting?

Answer 1

a statistical technique which uses data to make predictions about the future sales of a business

Question 2

what is time series analysis used for?

Answer 2

by using historical data, businesses can make better predictions for the future

Question 3

what are the 4 components which are included in time series data?

Answer 3

Trend
Seasonal Fluctuations
Cyclical Fluctuations
Random Fluctuations

Question 4

what is QSF information used for?

Answer 4

1. Organise production
2. Organise resources in the business e.g. employees,raw materials
3. Organise marketing to back up the sales predictions

Question 5

How can we identify the trend in our data?

Answer 5

we need to smooth out the raw data by using a three period moving average and a four period moving average
then work our a seasonal variation

Question 6

How do we work out a three period moving average?

Answer 6

1. Add data from first three years and then continue moving down one by one & putting the total into the middle value column
2. Work out the averages by dividing each value by 3

Question 7

How do we work out a four period moving average?

Answer 7

using 8 sets of data & centering
-take 1st 4 pieces of data & add them together, continue missing out one each time until reach the end of the data set
-add the summed data from year 1-4 to year 2-5 and so on until the end
-divide the total summed data by 8 to get the 4pma

Question 8

How do we work out seasonal variation?

Answer 8

SV = Actual Sales - Trend

Question 9

what is meant by seasonal variations?

Answer 9

a method of improving the accuracy of predictions by identifying the average variation over a certain time period & take this into account when making business decisions

Question 10

what is the reason that a firm can recognise the variations that regularly occur throughout months of the year?

Answer 10

seasonality of products/services/employees

Question 11

what are some limitations to QSF?

Answer 11

-past performance is no guarantee of the future
-Business need to appreciate the SWOT & PESTLE factors that may affect future predictions
-less relevant in dynamic markets due to high rates of change and with products with short life cycles -> extrapolation can be misleading
-time consuming

Question 12

How can QSF be more reliable?

Answer 12

used for a short period of time in the future e.g. 3 months
they are revised frequently
Market research data is available
Market is slow changing
those preparing the qsf have a good understanding of the data

Question 13

what are some strengths of QSF?

Answer 13

provide indications of likely future trends
helps businesses prepare for variations they may face

Question 14

does a scatter graph require a line of best fit?

Answer 14

yes it does
to show the relationship of the correlation

Question 15

Why as a business director should you know how to interpret scatter graphs?

Answer 15

to study the relationship between spend on marketing and sales

Question 16

what is the correlation coefficient formula?

Answer 16

R = Sum of XY / Square root (sum of X squared)(sum of Y sqyared)

Question 17

what is qualitative forecasting?

Answer 17

uses peoples opinions and judgements over numerical data
-based predictions on the views of experts or experienced managers in the marketing or production department
-this method is used by businesses where there is insufficient numerical data and figures date quckly due to rapid market change

Question 18

what is qualitative forecasting?

Answer 18

uses peoples opinions and judgements over numerical data
-based predictions on the views of experts or experienced managers in the marketing or production department
-this method is used by businesses where there is insufficient numerical data and figures date quickly due to rapid market change

Question 19

define centering

Answer 19

a method used in the calculation of a moving average where the average is plotted or calculated in relation to the central figure

Question 20

define moving averages

Answer 20

a succession of averages derived from successive segments of a series of values

Question 21

define time series analysis

Answer 21

a method that allows a business to predict future levels from past figures

Question 22

why must QSF be used with context in mind?

Answer 22

as forecasts can effect decisions made on staffing, ordering materials and marketing etc, these decisions are subjective in the sense they are judgements are made by individuals who may be driven by competing motives

-use this lack of certainty to create balanced arguements as the statistically produced trend may point to a particular level of sales the wider economic factors might make this forecast unlikely e.g. rise on average incomes