6 Important Factors that are Involved in Demand Forecasting

Important factors that are involved in demand forecasting:

Factors

(i) Period of forecasting:

Demand forecasting may be short-term or long-term. A short-term demand may cover a period of three months, six months or one year but not exceeding one year and long forecasting covers a period exceeding 5 years.

A business should forecast short term as well as long term sales/demand for its products to have a clear view of business activities.

An alternative method may be to associate the long term and short term forecasting with certain types of decisions.

Thus, short term forecast is one which provides information for day to day operations within the limits of resources currently available. Whereas long term forecasting is more concerned with decisions extending or reducing the units of resources.

(ii) Demand forecasting may be undertaken at three different levels:

(a) Marco level:

It is concerned with business conditions over the whole economy measured by an approximate index of industrial production, national income or expenditure.

This kind of external data covers the basic assumptions on which the business must have a base for its forecasts.

(b) Industry level:

This includes the preparations of sales forecasting by different trade associations.

(c) Firm level:

It is an important matter from the managerial view point. Individual firms forecast their sales.

(iii) The forecast may be general or specific:

General forecast may be useful for the firm but it also needs commodity forecasts and sales area forecasts (specific forecasts).

(iv) As far as the new products are concerned, methods and problems for forecasting are quite different from products already established in the market as sales trends are known better and the competitive nature is well known. Thus, the methods and problems should be studied accordingly.

(v) Products are to be classified under capital goods and consumer durable or non-durable goods and services.

There are distinct patterns of demand for different category of these economic analysis. Various factors affecting the demand of consumer and capital goods have been discussed in previous chapter.

(vi) In every forecast, every product has special factors of its own. If there is competition in the market, situation is complicated up to what extent with uncertainty or unmeasurable risk, error or inaccuracy in the forecast requires consideration. At the same time, sociological factors are not to be left unattended.