Demand Forecasting - Market Demand Analysis, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

hello and welcome to the world of free
learning this is edge media world and
you are watching operations management
videos this session will be starting
with the topic of demand forecasting
forecasts are becoming the lifeline of
business in a world where the tidal
waves of change are sweeping even the
most established of structures so I will
in this age requires the tact talent and
technique of predicting the future and
demand forecasting is all about
predicting the future today we will just
look at the introduction to demand
forecasting and the topics which we'll
be covering is first of all we will look
at the meaning and the formal definition
of demand forecasting then we will move
on to look at the importance of this
topic then the criteria of good
forecasting method and finally will
conclude with the limitations of demand
forecasting all right so now let's move
on to understand what basically demand
forecasting is we know forecast is
becoming the sign of survival and the
language of business all requirements of
the business sector needs the technique
of accurate and practical reading into
the future focus are therefore very
essential requirement for the survival
of business management requires
forecasting information when making a
wide range of decisions so now let's
look at the formal definition of
forecasting demand forecasting is the
scientific and analytical estimation of
demand for the product or service for a
particular period of time now what do we
understand well demand forecasting here
it says is the estimation of the unknown
future demand using some analytical
technique which uses the past data and
some statistics or merely the delicious
well thought and discussed judgment or
decision maker for the purpose of
and operations planning another
definition says that it is an art or
science of predicting or estimating the
future demand for a product undertaken
for the purpose of long-term decision
and planning so a forecast is a
prediction or estimation of wager
situation it is an objective assessment
of future course of action although we
have got several definitions but what we
understand from this is that it is the
process of determining how much of what
products are needed when where and how
long
although future demand is highly random
and affected by many factors demand
characteristics such as trends cycles
and seasonal variations can be predicted
using the numerical techniques now too
much emphasis should not be placed on
mathematical or statistical techniques
of forecasting those statistical
techniques are essential in clarifying
relationship and providing techniques of
analysis they are not the substitutes
for judgment also it should be left
entirely to the judgment of the
so-called experts so what is needed is
some common sense between both pure
guessing and too much of mathematics so
now let's move on and look at the
importance of demand forecasting it is
becoming increasingly important and
necessary for business to predict their
future prospects in terms of sales costs
and profits the value of future sales is
crucial as it affects cost and profits
so the prediction of future sales is the
logical starting point of all business
planning demand forecasting is very
popular in industrially advanced
countries and demand forecasting is
bound to become more important with the
growing industrialization of the country
so what we understand is that the first
and foremost importance we
we can emphasize on is that it is
necessary for sound planning it lays the
foundation for operation planning
scheduling production planning inventory
management and other production and
operation functions long-term plan forms
the framework for corporate investment
planning capital management expansion
capacity planning research and executive
development forecasting plays a pivotal
role in the operations of modern
management it is an important and
necessary aid to planning and planning
is the backbone of effective operations
many organizations have failed just
because of lack of forecasting or faulty
forecasting on which the planning was
based for example curtiss-wright one of
the major aeroplane manufacturers the
equal of Douglas and Boeing combined in
1945 decided to put its money into an
improved Western engine insert objects
the management of quarters right did not
accurately forecast the markets for jets
and hence failed the more accurately the
future conditions can be predicted be
better and more sound are the plans and
higher the probability for success of
these plans on the national level sales
forecast of particular products may
provide guidelines for demand
forecasting for related industries for
example a demand forecast for cotton
textile they provide an idea of probable
demand for textile machinery readymade
garments dyestuffs
and so on now the government on the
basis of sales forecasts may decide
where the imports are necessary to meet
the deficit in the home demand or may
provide export incentives for any
surplus thus demand forecasts are useful
to the firm
industry as also to the government
moving on to the next important point a
phone can maximize its profits only when
it produces on the basis of demand of
its products so the next important point
is about the maximization of profits now
we know inaccurate demand may lead to
shortage in production excessive
inventory understaffing
delay in deliveries etc and various
other mismanagement and mishandling
leading to decay in business there is no
problem of over-and-under production if
the figure of sales forecasts is
accurate as it will reduce or have
control over cost the profit will
certainly go up the importance of sales
forecasting is much more in large sale
or signal industries in the same way
business and economic conditions change
over time thus prompting to investigate
and know in advance the nature of demand
beforehand the sales forecast is
particularly important as it is the
foundation upon which all company plants
are built in terms of markets and
revenue management would have been a
simple matter if business was not in a
continual state of change the base of
which has quickened in the recent years
apart from these major importance there
are some more like it gives confidence
to the managers for making important
decisions
it keeps managers active and alert to
face the challenges of future events and
the changes in the environment so we see
that it has got a lots of importance
especially in the ever-changing modern
business scenario so that these
importance has made it an important
function and practically no industry can
work without forecasting their needs
their demand it says
which is going to come alright so now
let's move on and very quickly look at
the various criteria of a good
forecasting methods there are a good
many ways to make a guess about future
scenes they show contrast in cost
flexibility and adequate skills and
sophistication we will see all of these
various methods in our upcoming sessions
we will see the various types of
forecasting various methods used the
qualitative and the quantitative methods
but given the contrast in all of these
methods there is a problem of choosing
the best method for particular demand
situation however there are certain
economic criteria of broader
applicability we will look at them very
quickly some of them are accuracy
plausibility durability flexibility
availability economy simplicity and
consistency so let's look at them one by
one if we look at the first point that
is accuracy the forecast obtained must
be accurate now how is an accurate
forecast possible we know it is
practically not possible to get 100%
accurate demand to obtain an accurate
forecast it is essential to check the
accuracy of the past for gas against
present performance and of the present
forecast again future performance
accuracy cannot be tested by precise
measurement but by judgment coming to
plausibility the executive should have
good understanding of the technique
chosen and they should have confidence
in the techniques used understanding is
also needed for proper interpretation of
results plausibility requirements can
often improve the accuracy of results if
we talk of the durability unfortunately
a demand function fitted to the past
experience may back cost vary greatly
and still follow
in a short time as a forecaster the
durability of the forecasting power of a
demand function depends partly on the
reasonableness and simplicity of the
functions fitted but primarily on the
stability of the understanding
relationships measured in the past of
course the importance of durability
determines the allowable cost of the
forecast if we look at the flexibility
it can be viewed as an alternative to
generality a long-lasting function would
be set up in terms of basic natural
forces and human motives
even though fundamental it would
nevertheless be hard to measure and thus
not very useful a set of variables whose
coefficient could be adjusted from time
to time to meet changing conditions in
more practical way to maintain intact
the routine procedure of forecasting in
the talk of availability immediate
availability of data is a vital
requirement and the search for
reasonable approximation to relevance in
late data is a constant strain on the
forecasters patience the technique
employed should be able to produce
meaningful results quickly delay in
results will adversely affect the
managerial decisions now the next US
economy and economy is a prime
consideration cost should be weighted
against the importance of the forecast
to the business operations a question
may arise how much money and managerial
effort should be allocated to obtain a
higher level of forecasting accuracy the
criterion here is the economic
consideration we should see the cost in
terms of the benefit which would come
out of the exercise that is we will have
to look at the return which the system
which the method would give us
and based on the cost and accuracy we
will have to choose the method next as
simplicity statistical and econometric
models are certainly useful but they are
intolerably complex to those executives
who have a fear of mathematics these
methods would appear to be Latin of
Greek the procedure should therefore be
simple and easy so that the management
may appreciate and understand why it has
been adopted by the forecasting and
finally coming to a consistency the
forecaster has to deal with various
components which are independent if it
does not make an adjustment in one
component to bring it in line with the
forecast of another he will achieve a
pole which would appear consistent so
these are some of the points which we
need to take care and which we need to
consider while selecting a method of
forecasting and as I said we will look
at the various types and various methods
of forecasting gradually one by one in
detail from our upcoming sessions will
conclude the session finally with the
limitations so let's talk of the
limitations we know that every system
has got certain limitations so let us
look at what are the limitations of
demand forecasting first is the change
in fashion now this is an inevitable
consequence of advancement of
civilization the results of demand
forecasting have short lasting impacts
especially in a dynamic business
environment and we know most of the
business are dynamic in nature in the
modern world the point here to underline
is that forecasting can only estimate
the future events it cannot guarantee
that these events will take place and
even if it takes place how long will it
continue to stay there for long term
forecast will be less accurate as
compared to shore
focused the next limitation is the lack
of past data forecasting is generally
based on past events which requires past
data which may or may not be correctly
available all the time this is a typical
problem in case of a new products
however history may not repeat itself at
all times further forecasting is based
on certain assumptions now if these
assumptions are wrong the forecasting is
going to go wrong the next limitation is
that at times it could be an economical
the collection of data analysis of data
about the past present and future and
estimation involves a lot of time and
money which may not be affordable
therefore managers have to balance the
cost of forecasting with its benefit and
this is the reason that many small firms
do not go for forecasting because the
cost is very high for them and the
benefits are not equivalent to the cost
involved next to the lack of experienced
experts accurate forecasting necessary
it's experienced experts who may not be
easily available
it requires proper judgment and skills
on the part of managers it's not a
random process and the person at the hem
of affair needs to know the process the
method and all its requirements focus
may go wrong due to bad judgment and
skills on the part of some of the
managers forecasting by less experienced
individuals may lead to Aaron s
estimates therefore forecasts are
subject to human error and finally we
have consumers psychology results of
forecasting depends largely on consumer
psychology and understanding this itself
is very difficult knowing what the
consumer thinks and what he'll be
choosing in
nature is a very complex process this
requires a very close coordination
between the people who are in fields and
regular collection of the opinion of the
consumers and then based on these data
and the understanding of the psychology
and how food changes an expert needs to
make a judgement so the success makes at
a very complex process however still in
spite of these limitations we use demand
forecasting very extensively and it is
the need of every business house in the
modern world well friends that's all we
have in this session we'll be continuing
with the other topics of demand
forecasting keep watching our videos at
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