01-05-2012, 05:06 PM
Demand Forecasting
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Introduction
An important aspect of demand analysis from the management point of view is concerned
with forecasting demand for products, either existing or new. Demand forecasting refers to an
estimate of most likely future demand for product under given conditions. Such forecasts are of
immense use in making decisions with regard to production, sales, investment, expansion,
employment of manpower etc., both in the short run as well as in the long run. Forecasts are made at
micro level and macro level. There are different methods of forecasts like survey methods and
statistical methods generally for the existing products and for new products depending upon the
nature, number of methods like evolutionary approach substitute approach, growth curve approach
etc.
Meaning And Features
Demand forecasting seeks to investigate and measure the forces that determine sales for existing
and new products. Generally companies plan their business production
or sales in anticipation of
future demand. Hence forecasting future demand becomes important. In fact it is the very soul of
good business because every business decision is based on some assumptions about the future
whether right or wrong, implicit or explicit. The art of successful business lies in avoiding or
minimizing the risks involved as far as possible and face the uncertainties in a most befitting manner
.Thus Demand Forecasting refers to an estimation of most likely future demand for a product
under given conditions.
Micro level or firm level
This refers to the demand forecasting by the firm for its product. The management of a firm is really
interested in such forecasting. Generally speaking, demand forecasting refers to the forecasting of
demand of a firm.
Industry level
Demand forecasting for the product of an industry as a whole is generally undertaken by the trade
associations and the results are made available to the members. A member firm by using such data
and information may determine its market share.
Macrolevel
Estimating industry demand for the economy as a whole will be based on macroeconomic
variables
like national income, national expenditure, consumption function, index of industrial production,
aggregate demand, aggregate supply etc, Generally, it is undertaken by national institutes, govt.
agencies etc. Such forecasts are helpful to the Government in determining the volume of exports and
imports, control of prices etc.
The managerial economist has to take into consideration the estimates of aggregate demand and
also industry demand while making the demand forecast for the product of a particular firm.