4.3 Sales Forecasting (HL ONLY)

Definition

Sales forecasting is a quantitative management technique that use past data to calculate the moving average, hence predicting a firm's level of sales over a given time period.

benefits

Improved stock control -ensure that the correct levels of stocks are available for use in production at different times of the year

Helps to secure external sources offinanceAccurate and realistic sales forecasting can help a business to obtain external financing from investors and commercial lenders.

Improved budgeting - helps managers to anticipate changes, such as seasonal variations and therefore to adjust budgets accordingly.

improve productive efficiency

limitations

Limited information - based on historical data and trends, without any consideration of qualitative

factors

Inaccuracy of predictions - part fact and part guesswork. There can be an element of bias or subjectivity in sales forecasting, eg level of confidence in the economy

Garbage in, garbage out (GIGO) - Ifthe data and information used to predict sales forecasts are outdated, irrelevant or heavily biased, then the forecasts are unrealistic and oflittle or no value to management.

methods to make it realistic

market research

extrapolation

time series analysis

Time series analysis

sales forecasting technique that attempts to predict sales levels by identifying the underlying trend from a sequence of actual sales figures.