Sales forecasting

Question 1

What is sales forecasting?

Answer 1

• a forecast to see how many sales a business is expected to make
• sales forecasting is a crucial part of business planning:
  forms the basis of most common parts of business planning:
• human resource plan
• production/capacity plans
• cash flow forecasts
• profit forecasts and budgets
• part of regular competitor analysis and helps to focus market research.

Question 2

What key factors can affect the accuracy and reliability of sales forecasts?

Answer 2

• consumer trends (demand in many market changes as consumer tastes and fashions change/ affects both overall market demand and the market shares of existing competitors)
• economic variables (demand often sensitive to changes in variables such as exchange rates, interest rates, taxation)
• competitor actions ( hard to predict, but often proves to be why sale forecasts tend to be overly optimistic

Question 3

Circumstances where sales forecasts are likely to be inaccurate?

Answer 3

• If the business is new
• market subject to significant disruption from technological change
• demand is highly sensitive to changes in price and income (elasticity)
• product is a fashion item
• significant changes in market share (new market entrants)
• management have demonstrated poor sales forecasting ability in the past

Question 4

What is the difference between qualitative and quantitative methods of sales forecasting?

Answer 4

• qualitative methods of sales forecasting rely less on data, and much more on the opinions and experiences of the people involved in the forecasting process.
• If qualitative forecasting is about obtaining opinions about the future, what are the main methods of getting those opinions?
• delphi method
• panel method
• scenario planning

Question 5

What is the delphi method?

Answer 5

• generates a forecast using ‘experts’
• rather than getting experts meet face to face, the chosen experts are sent a survey or questionnaire (by post or email). each expert completes the survey without reference to any other contributor.
• the replies to the survey are analysed, summarised and then returned back to the experts so that they can consider their responses and views after learning about the views of the other experts.
• this process may be repeated until a consensus is reached

Question 6

What are the disadvantages of the delphi method?

Answer 6

• time consuming nature of the survey process (potentially costly)
• they way in which the ‘experts’ are chosen (who chooses and why)
• whether some experts are more expert than others, who’s opinion should be given more weight (if anyone.

Question 7

What is the panel method?

Answer 7

• This method of forecasting is a specialised form of focus group
• the panels member meet face to face and discus openly their views on the forecasts required, with the aim of reaching a consensus.

Question 8

What are the disadvantages of the panel method?

Answer 8

• some experts will shout louder than others, or be more forceful in expressing their opinions
• the panel approach encourages a quick resolution, rather than a more reflective approach (which might lead to a better quality sales forecast)

Question 9

What is scenario planning?

Answer 9

• This method is popular where the sales forecast is subject to a lot of uncertainty.
• This is often true when a sales forecast is intended to cover a long period of time (e.g.3+ years) or where there are inherent risks in the demand for the product or market being forecasted.
• scenarios are not intended to produce a consensus. Rather, it is about identifying the likely or possible scenarios for different sales outcomes, and then coming up with a plan for how the business would respond for the least desirable scenarios. Scenario planning is linked, therefore, to contingency planning.

Question 10

What is a hunch?

Answer 10

• a qualitative method of sales forecasting
• ‘an educated guess’
• a forecast based on a hunch is likely to be influenced by the experience of the forecaster, perhaps influenced by market research or from discussions he/she has had with others in the market.
• an experienced marketing manager with many years of experience in an industry will have strong insights into the sales prospects for individual products, business units and so on.
• the starting point of a hunch is often the previous years or period data.

Question 11

how do you calculate three point moving averages?

Answer 11

• say for example you have three months, jan, feb and march, to calculate the moving average for feb you’d take the sale figures for jan, feb and march, add them together, then divide by three and that’d calculate the average for the middle month.

Question 12

What are the benefits and usefulness of time series analysis for a business?

Answer 12

• helps the business plan ahead
• helps financial planning, including cash flow management
• useful in identifying seasonal variations
• reduces the risk of unexpected surprises that could affect business performance.
• helps with calculating production level
• helps with getting the right number of staff needed

Question 13

What are the problems of time series analysis?

Answer 13

• it is not always easy to predict the future
• historical data is not always a good indication of what might happen in the future
• less useful for long term forecasts
• as with all forecasting methods, success is not guaranteed.
• no forecast can be 100% correct.