Forecasting Flashcards
Explain the nature and purpose of forecasting
Forecasting is the use of existing data to predict future trends. Businesses need to use forecasting so that they can make plans for the future.
What can forecasts be made about?
- Costs
- Market size
- Sales (most important)
What can forecasting be used to do?
- Employ right amount of staff
- Make the right operational decisions to meet sales forecasts
- Ensure positive cash flows
- Support new marketing strategies or the changes to the marketing objectives.
- Gather evidence to support a finance raising exercise.
What is quantitative forecasting?
Numerical.
- Views and opinions can be used to reach decisions about the future.
- These will often be based on previous experience or on a systematic collection of opinions from groups like consumers or sales staff.
What is qualitative forecasting?
Based on experience and understanding
What are the three types of qualitative forecasting?
1) Delphi technique
2) Brainstorming
3) Managers intuition
What is the Delphi technique? (structured method of qualitative forecasting)
Relies on information from experts.
- Experts are asked their opinions on the likely outcomes of particular business or economic situations.
- It often takes the form of a questionnaire.
- The opinions of the group will converge to a median or average.
What is brainstorming? (unstructured method of qualitative forecasting)
This technique brings together individuals to discuss their ideas for solutions to problems.
What is manager intuition? (unstructured method of qualitative forecasting)
Managers rely on their knowledge and previous experience of the markets and the economy to forecast an outcome.
What is the main quantitative method of forecasting?
Time series analysis (TSA)
What is the time series analysis and what is its aim?
It is a moving average,
- A moving average looks as data over a period of time and combines it over different periods to give averages.
- A moving average takes a data series and “smoothes” the fluctuations in data to show an average.
-The aim is to take out the extremes of data from period to period.
How does TSA give forecasts?
TSA is the use of a moving average using past data, calculated over a period of time, which is then projected to give forecast figures for the future.
By using TSA what can a business do?
- Calculate 3 point moving averages.
- Extrapolate using a line of best fit to generate sales forecasts.
- Calculate the average variation and use this to adjust sales forecasts.
What are cyclical variations?
The variations in the data that occur as a result of the business cycle, and recessions and booms in the economy.
- It is the amount by which the actual sales in a period vary from the moving average figures.
- It is a more accurate forecast of annual sales.
What are seasonal variations?
These are changes that occur over the year; they will affect some businesses more than others.
