4.3 sales forecasting Flashcards
sales forecasting
quantitative technique used by businesses to predict the levels of sales that they may expect in future years
3 types of forecasting methods
- causal models
- time analysis
- qualitative techniques
causal models
a quantitative representation of real- world businesses dynamics, showing the causal relationships between an independant and dependant variable. use line of best fit
time analysis
statistical technique used by a business to identify trends in historical data, such as sales revenue figures of previous years recorded at proper intervals in the past.
recorded by year month or week
variations that occur in time series
seasonal variations
cyclical variations- affected by economic cycle
random variations- caused by irregularities
qualitative analysis
cannot rely on past quantitive data- understanding trends to identify forecast eg market research
uses of sales forecasting
based on past data
effective future planning
increase budgets to increase sales
better ability to make decisions
limitations of sales forecasting
not enough data
changing markets that skew data
forecast should only be a guide
estropolation
statistical technique that makes furture predicition of sales based on correlations and trends
types of correlation
negative
positive
no
linear regression models
statistical tecnoques used to determaine relationship between 2 variables
- scatter diagrams
- line of best fit
- correlation
advantages of simple linear regression
- predicitve analystics
- enhances decision making
- reveal new businesses oppirtunities
- reduces error and risk associated with business strategy- test theories
- improved managment more efficient
limitatuons of simple linear regression
- cause versus effect, correlation is not cause
- time consuming and expensive
- sensetive to outliers that skew data
- past does not guarantee future
