Demand forecasting: An individual may forecast his job prospects, a consumer

may forecast an increase in his income and therefore purchases, similarly a firm may forecast
the sales of its product. Demand Forecasting means predicting or estimating the future
demand for a firm’s product or products . Important aid in effective and efficient planning It is
backbone of any business.The short term objectives are as follows : 1.Formulation of
Production policy : helps to overcome the problem of over production and under production.
2. Regular Availability of Labour : helps to properly arrange skilled and unskilled labour.
3.Regular supply of Raw Material : helps in predicting requirement of raw material in future
. 4.Arrangement of funds : enables to estimate the financial requirements . 5. Price policy
formulation : enables the management to evolve a suitable price strategy . If the period of
forecasting is more than one year then it is termed as long term forecasting . • : 1.Labour
requirements : helps in arranging skilled labour . 2.Arrangement of funds : enables to
arrange long term finances on reasonable conditions. 3.To decide about Expansion
:enables to plan for a new project as well as expansion and modernisation of existing unit..

NEED AND SIGNIFICANCE • It is necessary to forecast demand in buisness

because : 1.Effective planning : provides scientific and reliable basis for anticipating future
operations 2.Reduction of uncertainty : aims at reducing the area of uncertainty that
surrounds mangerial decision making with respect to costs , production, sales , profit etc .
3.Investment decision : investments are made keeping in mind the the returns and returns
depend on market demand. 4. Resource allocation : efficient allocation of resources when
future estimates are available.5. Pricing decisions : in order to pursue optimal pricing
strategies firm need to have complete information about the future demand.Two concepts
arises here : (a)Overoptimistic :these estimates may lead to an excessively high price and
lost sales. (b)Overpessimistic : these estimates of demand may lead to a price which is set
too low resulting in losses. 6.Competitve strategy : the level of demand for a product will
influence decisions , which the firm will take regarding the non-price factors . 7. Managerial
control : forecasting disclose the areas where control is lacking . It is must in order to control
costs of production.

QUALITATIVE TECHNIQUES :They mainly employ human judgement to predict future

events . They are also called macroeconomic methods. • Expert Opinion Method : This
technique of forecasting demand seeks the views of experts on the likely level of demand in
the future. They have a rich experience of the behaviour of demand. • If the forecasting is
based on the opinion of several experts, then it is known panel consensus. • A specialized
form of panel opinion is the Delphi Method. This method seeks the opinion of a group of
experts through mail about the expected level of demand. • The responses so received are
analyzed by an independent body • Survey Methods : In it we have four major survey
methods : a) Consumers Complete Enumeration Survey : • In this method data is collected
from all the customers and then added up to arrive as the total expected demand of the
product. • The method is comprehensive and can give better forecasts of demand. • This
method is time consuming and costly.b) Consumers Sample Survey : • Only a few
consumers are selected and their views on the probable demand are collected. • Thus, it is a
miniature form of Complete Enumeration Survey. • The sample is considered to be a true
representation of the entire population. • This method is simple and cheaper. • The results of
(Demand forecasting page 2) survey can be obtained quickly and results are
good. c) Sales Force Opinion Survey : • In this method sales persons are expected to
estimate expected sales in their respective territories. • The sales force, which has been
selling the product to wholesalers / retailers / consumers over a period of time, is considered
to know the product and the demand pattern very well. • These method does not require
intricate mathemathical calculations. • This method is based on the first hand knowledge of
the salesman. • It is useful to forecast the sales of new products. d) Consumer’s End Use
Survey : • The end use method focuses on forecasting the demand for intermediary goods. •
Such goods can also be exported or imported besides being used for domestic production of
other goods. QUANTATIVE TECHNIQUES This method involves various statistical tools
to data for predicting future events. These methods are also called microeconomic methods.
Involves the prediction of activity of particular firms, branded products, commodities, markets,
and industries. They are much more reliable. a) Trend Projection Method : • This method is
used when a detailed estimate has to be made. • Time plays a n important role in this method
. • This method uses historical and cross –sectional data for estimating demand This
technique assumes that whatever has been the pattern of demand in the past, will continue to
hold good in the future as well.• In this method data is arranged chronologically which yields a
‘time series’. • The time series represent the past pattern of effective demand for a particular
product and is used to project the trend of the time series. • To do so there are two methods :
Graphical method : • A trend line can be fitted through a series graphically . • Old values of
sale for different areas are plotted on graph and a free hand curve is drawn passing through
as many points as possible . • Based on trend equation, we find ‘Line of Best Fit’ and then it
is projected in a scatter diagram,dividing points equally on both sides. Least Square Method
: • It is a mathematical procedure for fitting a line to a set of observed data points in a manner
that the sum of the squared differences between the calculated and observed value is
minimised. • The linear trend is the most widely used mode of time series analysis.b)
Barometric Method : • Method uses business barometers or indicators of various economic
phenomena. • The term Barometer is used to indicate the economic phenomena. • The
assumption behind this is that the past pattern tend to repeat themselves in future and future
can be predicted with the help of certain happenings of the present. • Forecasting Techniques
that use the lead and lag relationship between Economic variable for predicting the
directional changes in the concerned variables are known as Barometric Techniques.c)
Econometric methods : • Refers to the application of mathematical economic theory and
statistical procedures to economic data to establish quantitative results. • These models are
very complex in practice as they combine the knowledge of economics , mathematics and
statistics. • Employs the following two : 1.Regression Method : • Linear regression analysis
establishes a relationship between a dependent variable and one or more independent
variables. • In simple linear regression analysis there is only one independent variable. • If the
data is a time series, the independent variable is the time period. • The dependent variable is
whatever we wish to forecast.. Simultaneous Equations : • When the inter relationship
between the economic variables becomes complex, the use of single equation regression
method becomes difficult. In such cases forecasting of demand is done using multiple. 2.
simultaneous equations. This is the complex statistical methods of forecasting. These
variables are of two types : • endogenous, • exogenous.