Theme 3 - 3.3.1- Quantitative Sales Forecasting

Question 1

What is quantitative sales forecasting ?
QSF

Answer 1

QSF is a statistical technique which uses data to make predictions about the future in terms of sales

The method is also called time series analysis

Basically it uses historical data to make better predictions for the future - so if there was this many sales the past 5 years and if the sales are slowly going up then this might mean that’s the sales this year will be higher as well

Question 2

What can a business do with QSF information ?

Answer 2

Once a business has carried out a time series analysis they will use this info to:
- Organise production
- Organise resources in the business e.g. employees
- Organise marketing to back up the sales predictions

However historical data is what happened before and it doesn’t take into account external shocks therefore it might not be that useful as what happened before might not happen this time

Question 3

How to calculate the 3 p[eriod moving average ?

Answer 3

First take the first the 3 years and find the mean average so the sales of these 3 years added together and then divide by 3

Then you leave pout the first year and take the next 3 years and then find the mean

The calculation goes next to the middle year

Then plot a graph from your 3 period moving average - and plot your actual sales - you should realise that your moving average is more ‘smooth’ and therefore you can see trends appearing better and it helps to make a more accurate sales forecast as it smoothens out any large fluctuations in data

Question 4

What is the 4 quarter moving average ?

Answer 4

As a business manager or owner you may need to look at your sales data in terms of the 4 seasons of the year

Your sales may fluctuate widely due to external shocks and competition but you still need to schedule your production on a month by month basis you would use this technique

Question 5

The 4 quarter moving average - what does it do ?

Answer 5

Again it just smoothens the data out so it makes it easier to make predictions and it smoothens out fluctuations due to external shocks etc - it makes it easier to see the trend

Question 6

What does the smopothened data helps to do ?

Answer 6

It helps you to identify the trends such as a slow increase in sales etc - flatlining - rapidly increasing etc etc as if there is fluctuations then it will be hard to tell the trends

Question 7

What does the data from QSF tell you to do ?

Answer 7

IF there is a rapid increasing trend then that means you might have to increase production for this time of year etc

Question 8

What do scatter graphs tell, you ?

Answer 8

As a business director you need to find out if your need to put up the budget in the marketing departament - for example if there is a scatter graph for advertisement and sales then if there is a negative correlation then you might have to pump more money into advertising

Question 9

What can we do to LOBF in a scatter diagram ?

Answer 9

You can extrapolate the LOBF to see what might happen in the future or what is predicted to happen but remember this doesn’t take into account stuff like external shocks

Question 10

What are the limitations of QSF techniques ?

Answer 10

• Past performance is no guarantee of the future
• Businesses need to appreciate the SWOT and PESTLE factors that may affect future predictions for e.g. weather, trends, competitor activity
• In high technology markets, change happens rapidly and products have short product life cycles therefore extrapolation may be misleading as you would think that this iPhone would still make sales however a new technology came out so this would shift the sales to other technologies
• It is time consuming and complex and it only reliable as the date put in - so if the data is bad then the graph would be bad
• Use of moving averages doesn’t take into account how recent the data is
• Doesn’t link with corporate objectives