3.3.1 Quantitative Sales forecasting

Question 1

What is the purpose of forecasting sales?

Answer 1

• human resource plan - how many people linked with expected output
• production/capacity plans
• cash flow forecasts
• profit forecasts and budgets

Question 2

What is a moving average?

Answer 2

• this looks at several periods at a time and averages out the data
• this helps to iron out all peaks and troughs in demand and gives a more accurate figure of whether sales have risen or fallen in a market over a period of time

Question 3

How do you calculate variations in moving averages?

Answer 3

sales in a specific time period - the moving average sales

Question 4

Time-series analysis

Answer 4

refers to the use of past data and trends to forecast and predict future threats

Question 5

What is a 3 period moving average?

Answer 5

allows a business to use 3 sets of data to collect an average for future predictions
-reduces the impact of a single anomaly on future predictions as an average from 3yrs is calculated

Question 6

What is a 4 period moving average?

Answer 6

allows a business to use data from four quarters to calculate an average sales figure
-these increase calculation accuracy because they minimise the impact of unusual or seasonal sales figures

Question 7

What are correlations?

Answer 7

• used by marketing departments to examine the relationship between two variables
• scatter graphs are used to show correlation and allow businesses to correlate data

Question 8

What is extrapolation?

Answer 8

a method used by businesses to predict future levels such as sales through analysing and finding a trend in past data

Question 9

Positive correlations

Answer 9

occurs when an increase in one variable results in an increase in the other variable

Question 10

Negative correlations

Answer 10

occurs when an increase in one variable results in a decrease in the other variable

Question 11

No correlation

Answer 11

if a relationship between 2 variables cannot be determined

Question 12

Line of best fit

Answer 12

-used on a scatter graph to represent data and identify the general relationship between plotted points of data

Question 13

Disadvantages of quantitative data

Answer 13

• changes in external environment can impact the businesses future performance - this is not reflected in the past performance data which is used to extrapolate
• changes in the internal enviroment (culture, leadership)
• can be time-consuming and complex

Question 14

Advantages of extrapolation

Answer 14

• simple method of sales forecasting
• not much data required
• quick and easy

Question 15

Disadvantages of extrapolation

Answer 15

• unreliable if there are significant fluctuations in historical data
• assumes past trends will continue into the future - unlikely in many competitive environments
• ignores qualitative factors - change in trens

Question 16

What makes quantitative techniques more effective in forecasting sales?

Answer 16

• Business is mature - lots of data to identify trends
• Industry is mature - rapid change is likely
• stable external environment - economy, economy,technology, competition, legislation