MANAGERIAL ECONOMICS Project on:

DEMAND FORECASTING

WHAT IS FORECASTING?

A Forecasting is an estimation of a future situation.

INTRODUCTION
Demand forecasting denotes an estimation of the level of demand of the product at a future period under given circumstances.

TYPES OF FORECASTING
Short term forecasting Medium term forecasting Long term forecasting

FORECASTING METHODS

SURVEY METHOD

STATISTICAL METHOD

Opinion Surve y

Consumer Interview

Trend Projection

Barometric Method Correlation & Regression

Complete Enumeration

Sample Survey

End-use Method

SURVEY METHOD
In survey method, we try to elicit information about the desires of the consumers and the opinions of experts by interviewing them. A) Opinion survey B) Consumers interview

OPINION SURVEY

In this method, the top executives of a firm find out the opinions of salesmen who are very close to the customers and well experienced.

OPINION SURVEY
MERITS(a)
(b) (c) (d)

Simple to conduct Can be used where quantitative data is not possible Inexpensive It takes little time
Not based on scientific analysis. The experts may be biased. Subjective and is vulnerable to influence by persons with vested interest.

DEMERITS(a) (b) (c)

CONSUMERS INTERVIEW

Forecasting is done by directly interviewing the consumers.

Classified into three: (a) Complete enumeration method (b) Sample survey method ( c) End- use method

COMPLETE ENUMERATION
Interviews or questionnaires are used to know the consumers preferences. MERITS(a) Simple to use (b ) Based on the collected data DEMERITS(a) Costly (b) Time consuming (c ) It is impossible to survey all the consumers

SAMPLE SURVEY

Instead of surveying all the consumers of a commodity, only a few consumers are selected and their views on the probable demand are collected.

MERITS: (a) An important tool for short term projections (b) Since only a few consumers are to be approached, the method works quickly (c) It is simple and low cost (d) The risk of erroneous data is reduced

SAMPLE SURVEY
DEMERITS: (a) The sample may not be a true representation of the entire population (b) The conclusions are based on the view of only a few consumers and not all of them.

END-USE METHOD
The end-use method focuses on forecasting the demand for intermediary goods. Eg: milk is a commodity which can be used as an intermediary good for the production of ice-cream, paneer and other dairy products.

Cont

Dm=Dmc + Dme Im + xi .Oi+ xp. Op+.+xn. On

Where, Dmc=Final consumption demand for milk Dme=Export demand for milk Im=Import of milk xi=Per unit milk requirement of ice-cream industry Oi=Output of the ice-cream industry Xp and Op notations are similar to xi and Oi for paneer.

MERITS:
(a) The method yields accurate predictions. (b) Sector wise demand forecast for different industries. (c) Useful for producers goods.

DEMERITS:
(a) Requires complex and diverse calculations. (b) Costlier as compared to the other survey methods and more time consuming. (c) Industry data may not be readily available.

STATISTICAL METHODS:
Statistical methods are adopted in forecasting demand for a product. Statistical or mathematical techniques are used to predict the demand.

A. Trend projection method B. Correlation & Regression C. Barometric method

TREND PROJECTION METHOD (TIME SERIES ANALYSIS)

This technique assumes that what ever has been the pattern of demand in the past will continue to hold good in the future as well. In this method, past data of sales are made used to determine the nature of existing trend and this trend is extrapolated into the future to get the demand for the forecast period

Cont
The linear trend is the most widely used mode of time series analysis. It is represented by Y= a+ bx Where, Y= demand, X= time period(no. of years) a & b are constant For calculating the Y for any value x requires the value of a & b. Normal equations: Y = na+bx xY = ax+bx2

MERITS:
The method provides reasonably accurate forecast. It is quick and in expensive.

DEMERITS:
Can be used only if past data is available It is not necessary that past trends may continue to hold good in the future as well.

CORRELATION & REGRESSION METHOD

CORRELATION:We try to discover the nature and extend of relationships b/w the variables by means of statistical and econometric techniques. One variable:simple correlation Two variable:multiple correlation

REGRESSION
Obtained to show the relationship b/w sales and several independent variables. The aim of regression and correlation analysis is to separate and measure the relation b/w variations in sales and the corresponding changes in the principal determinants of demand. Regression and correlation analysis is also called econometric model

BAROMETRIC METHOD
Events of the present are used to predict the directions of change in future. This is done by the use of certain economic and statistical indicators from the selected time series to predict variable. Eg: Bhuj earthquake in Jan ,2001

Cont.

MERITS: Simple method Predicts directional changes quite accurately DEMERITS: Does not predict the magnitude of changes very well. Used for short term forecast only.

CREDITS
GROUP-6 Al-Ameen Ashitha Chithra Greena Kiran Saumya Sundar

BIBLIOGRAPHY

Managerial economics- Yogesh Maheshwari