DEMAND FORECASTING METHODS:: BUSINESS ECONOMICS:BBA:MBA

 Demand Forecasting Methods/Techniques (BUSINESS ECONOMICS)

There are two methods in which demand forecasting can be done i.e (A) Survey Methods and (B) Statistical Methods.

Survey Methods::

1. Market Research

In this research technique, consumer-specific survey forms are sent in tabular format to get insights that an organization can’t get in general from internal sales. It gives better information about the type of customers and demographic data which will help to target future markets. Market Research helps companies to know their customer base better, intentions to buy products or services, thereby help to estimate the future demand.

2. Sale Force Opinion

This method collects data from sales groups to forecast demand. Salespeople of an organization are close to their customer bases, can generate valuable information on customer needs, behaviour, sales and feedback and can also give information about the competition in markets.

3. Delphi Technique

In Delphi Method, an organization hires a group of external experts, and generates a forecast based on their market knowledge. After this process forecasts are shared among the experts anonymously, hence experts get influenced by each other’s forecasts. Now the experts are asked again to generate a forecast and this process is repeated until all experts reach a near consensus scenario. The process is intended to permit the experts to expand on one another’s information and assessments.

Statistical Methods:

1. Trend Projection

It is the most common demand forecasting technique used by organizations. Trend Projection uses past sales data to project future sales. This technique can be used by organizations with a sufficient amount of past sales data (typically more than 18 to 24 months). The data is arranged in chronological order to form a time series, time series depicts the past trends based on which future market trends can be predicted.

2. Barometric Forecasting Technique

In Barometric Technique, demand is forecasted based on the basis of past events or the events occurring in the present. It is done by analyzing economic indicators such as saving, investment, and income. This method can be implemented even in the absence of past data. For example, if the government plans for a large housing project, this indicates that there would be high demand for construction materials in the future.

3.  Econometric Forecasting Technique

This technique combines past sales data with the factors that influence the demand to create a mathematical formula to predict future demand. It finds the relation between the dependent variable and the independent variables. If only one factor affects the demand it is known as a single variable demand function or simple regression. Whereas if there are multiple factors affecting the demand, it is known as multiple variable demand function or multiple regression.

Regression Equation : Y = a + bX , Y is the forecasted demand.

Conclusion

Demand forecasting helps organizations to make better business decisions. Based on the business requirements, sales data, market research, and economic factors different demand forecasting techniques can be used. It is often detailed, and expertise-driven.

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BCG MATRIX-EXPLAINED-BUSINESS STUDIES-BBA-MBA

Boston consultancy group growth share Matrix commonly known as BCG Matrix is a famous portfolio analysis technique developed by Boston consultancy group and it was developed for managing portfolio of different business units. The BCG Matrix shows a relationship between products that are generating cash and products that are eating cash.

The BCG Matrix shows various business units on a graph of market growth v/s market share relative to competitors. Resources are allocated to business units according to where they are situated on the graph.

BCG Matrix

(A) Cash cows – It is a business unit with large market share in a mature and slow growing industry.

Cash cow require little investment and generate cash that can be used to invest in other business

units. These a generally large and mature business units reaping the benefits of experience and

customer loyalty.

(B) Star – Stars are business unit that has a large market share in a fast growing industry. It may generate

cash but due to rapid growing market it requires investment to maintain its needs. It is a high growth –

high market share business unit. These business units are generally in the growth stage of its product

life cycle and not self sufficient in terms of its financial needs.

 

C) Question mark? – These are also called the problem child. It is a business unit which has a small market share in a high growth market. Such a business unit requires huge investment to grow market share but whether it will be a star or not is unknown.

(D) Dogs – These are business units with a small market share in a mature industry .A dog may not

require substantial cash but it ties up capital that could be invested elsewhere. Such a business unit

must be liquidated unless it has some special strategic purpose or prospects to gain market share in

the future.

The BCG matrix provides a framework for allocating resources among different business units and

allow one to compare many business units at a glance.

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Criticism of the BCG Matirx

♦ It is criticised that it does not reflect the true nature of the business. The BCG Matrix considers only

two dimensions High and Low for measurement and while a business may enjoy a high, medium or

low market share/growth rate.

♦ It assumes that high market share always leads to high profits which is not be true. High Costs are

involved in business units with large market share which may lead to normal profits.

♦ There are many parameters to measure profitability other than growth rate and market share. The

BCG Matrix ignores all other indicators of profitability.

♦ The model does not clearly define the markets.

♦ Long term profitability of a business depends upon a variety of factors which may not be related to market share or growth.