4.3 Flashcards
what is sales forecasting?
Sales Forecasting is a quantitative management technique used to predict a firm’s level of sales over a given period of time.
It is important, since sales forecasting can help a firm identify problems and opportunities in advanced.
why do you need to be carful in sales forecasting?
Nevertheless, trying to “predict the future” is very difficult since there are so many factors (internal and external) subject to change. If that’s the case, the prediction will be inaccurate.
what are some tecniques for sales forecasting?
There are several techniques for sales forecasting , such as: Extrapolation (identifying trend using past data), market research (based on buying habits of the consumers) and time series analysis (predicting the future based on historic data).
what is time sieres alanasys?
Time series analysis is a technique that attempts to predict sales levels by identifying a trend form a sequence of actual sales figures recorded at regular interval in the past.
what are the four elements of time seires alalasys?
The trend – a visible pattern obtained after inputting the past sales data; indicating a rise or fall of sales over a period of time.
Seasonal fluctuations – changes in demand due to varying seasons in the year (i.e. Easter eggs, sun lotion, Fireworks, occasions cards, etc.)
Cyclical fluctuations - these fluctuations are linked to the Economic Cycle (booms and recessions). For example, if there is a recession in the economy, sales are going to be affected.
Random fluctuations – unpredictable fluctuations that cannot be anticipated (i.e. an increase on sales of winter boots due to a change in weather)
what are moving avrages?
Even through the mean is the most common way to calculate an average, moving averages are
more accurate and hence a better tool for calculating sales forecasts.
Specifically, moving averages establish a trend by smoothing out variations caused by random, cyclical and seasonal fluctuations.
-Forthree point moving avarage, you will want to look at the powerpoint.
what is extrapolation?
Extrapolation – this technique identifies the trend by using past data and extend this trend to predict future sales.
The extension of the trend is done using the “line of best fit” and that’s known as extrapolation.
what are variations in extrpolations?
Variations – this is calculated by getting the difference between actual sales and trend values. YOU MIGHT WANT TO GO SEE ON THE POWER POINT AGAIN.
what are the benifits of sales forecasting?
Improved working capital and cash flow – helps the firm identify seasonal fluctuations in demand for their product and hence the implications on the firm’s liquidity. Managers can then better manage their cash flow.
Improved stock control – it helps ensure the correct stock is produced or stored (not excessive nor insufficient)
Improved productive efficiency – a proper production plan means a good use of the firm’s’ resources (i.e. hiring part-timers in peak holiday trading periods)
Helps secure external sources of finance – accurate sales forecasting can help the firm obtain other sources of finance (i.e. bank loans)
Improved budgeting – with an accurate sales forecasting, managers can anticipate changes in the economy and change their budgets accordingly.
what are the limiations of sales forecting?
Limited information – since sales forecasting is baes on historical data it might miss important factors; such as qualitative ones.
Inaccuracy of predictions – even accurate sales forecasting is based on assumptions and can be wrong for many reasons (i.e. what happened in the past for a product won’t be the same for a new product)
“garbage in garbage out” (GIGO) – if data used for the sales forecasting is irrelevant, biased or outdated then the forecast will be unrealistic (i.e. underestimating sales forecast to easily achieve targets)
External influences – unpredictable changes such as natural disasters or unexpected fluctuations in the business cycle can significantly affect the forecast.
talk about your bsuiness tool, simple liniar regression?
Linear regression models are statistical methods that are used to identify the connection between two variables. For example; the correlation between marketing expenditure and sales revenue or the influence of seasons on the demand for specific products and services. This information helps us with business decision making and strategic planning.
we will have a look at thtee methods for conducting simple linear regression analysis, what are they?
Scatter diagrams
Line of best fit
Correlation / Extrapolatio
what are scatter diagrams?
is a visual statistical tool that shows the relationship or correlation between two variables.
This is done by plotting the values of each variable on a different axis, such as the value of marketing expenditure on the horizontal axis (the x-axis), and the value of sale revenue on the vertical axis (y-axis).
We can use Market research to determine the extent to which there is a strong correlation between two varibles.
how do you know there is a positive correlation?
Apositive correlationexists if the two variables move in the same direction,
how do you know there is a negative correlation?
Anegative correlation exists if the two variables move in the opposite direction,
