CHAPTER-3 PROJECT MARKET FORCASTING & DEMAND ANALYSIS What is forecasting??? Forecasting means assessment of future event based on experience. It is a projection based upon past data or it is an estimate of an event which will happen in future. Forecasting is essential for valuable managerial decision. Forecasting is a basis of long term planning of an organization. Contd… • According to William J. Stevenson -“A statement about the future value of a variable of interest” • According to Lee J. Krajewshi and Larry Ritzman-“A forecast is a reproduction of future events used for planning purposes”. General features of forecasting • It reflects past experience: What happened in past may happen in future. • Forecasting are rarely perfect: Forecasting is assumption, correctness of forecasting depending on proper judgment of information. • Forecasting provides some expectation: Assessment of future provides some expectation, how market can be served, by which opportunities can be captured, planning to be educated. • Planning is very much depending on forecasting: Forecast is basis of planning, Forecasting assess future event and planning is promulgated and executed on the basis of forecasting. So planning is very much depending on forecasting. Elements of forecasting/qualities of good forecasting: • Timely forecasting: Forecasting should be made timely not in advance, not in late. Advanced forecasting leads to high degree of uncertainty. • Forecasting should be accurate: Relevant information is necessary for accurate forecasting. • Forecasting should be reliable: Reliability of forecasting depends on agencies, which provide relevant information. • Forecasting should be expressed in meaningful units: Financial forecasting should be expressed in Tk and production forecasting in unit. Contd… • Forecasting should be in written: Written forecasting accountable person who forecast and organization for which forecasting is made. • Forecasting techniques should be simple to understand and use: Users often lack confidence in forecast based on sophisticated techniques. So the techniques used in forecasting should be simple as much as possible. • Forecasting should be cost effective: Forecasting should not make excessive cost, it should be cost effective. Need of forecasting 1. When there is a time lag between awareness of an impending event or need and occurrence of that event. This lead time is the main reason of planning and forecasting. 2. Planning is the fundamental activity of management. Forecasting forms the basis of planning. 3. It is essential for the organization to know for what level of activities one is planning before investments in input Types of Forecasting Contd… • Short Term forecasting is the forecasting that made for short term objectives covering less than one year. For example, Material Requirement Planning (MRP), scheduling, sequencing, budgeting etc. • Long Term Forecasting is the forecasting that made for long term objectives covering more than five years. For example, Product diversification, sales and advertisement. Steps in the Forecasting Process “The forecast” Step 6 Monitor the forecast Step 5 Make the forecast Step 4 Gather and analyze data Step 3 Select a forecasting technique Step 2 Establish a time horizon Step 1 Determine purpose of forecast Key steps in market and demand analysis 1. Situational analysis and specification of objectives: Situational analysis generates enough data to measure the market and get a reliable handle over projected demand and revenues. To carry out such a study, it is necessary to spell out its objectives clearly and comprehensively. A helpful approach to spell out objectives is to structure them in the form of questions. – – – – Who are the buyers? What is total current demand? What price and warranty will ensure its acceptance? What channel of distribution is most suited? Contd… 2. Collection of secondary information: In order to answer the questions listed, while delineating the objectives of the market study, information may be obtained from secondary and primary source. Secondary information provides the base and the starting point for market and demand analysis. It indicates what is known and often provides leads and cues for generating primary information required for further analysis. 3. Conduct of market survey: Secondary information often does not provide a comprehensive basis for market and demand analysis. It needs to be supplemented with primary information generated through a market survey, specific to the project being appraised. The market survey may be a census survey or a sample survey. In a census survey the entire population is covered. The market survey is typically as sample survey. Contd… 4.Characterization of the market: Based on the information gathered from secondary sources and through the market survey the market for the product/service may be described in terms of the following: – – – – – – – Effective demand in the past and present; Breakdown of demand; Price; Methods of distribution and sales promotion; Consumers; Supply & Competition; Government policy. Contd… 5. Demand forecasting: After gathering information about various aspects of the market demand from primary and secondary sources, an attempt may be made to esteem ate future demand. 6. Market planning: To enable the product to reach a desired lever of market perform a suitable marketing plan should be developed. Broadly, it cover pricing, distribution, promotion and, service. Contd… • Obtain, clean, and analyze appropriate data: Obtaining the data can involve significant effort. Once obtained, the data may need to be “cleaned” to get rid of outliers and obviously incorrect data before analysis. • Make the forecast: After analyzing the obtained data, in this stage, the forecasting is made. • Monitor the forecast: A forecast has to be monitored to determine whether it is performing in a satisfactory manner or not. If it is not, reexamine the methods, assumptions, validity of data, and so on; modify as needed; and prepare a revised forecast. Determinants of demand 1. Price of particular product: Demand for a particular product depends upon price of its. There is an adverse relation between price and the quantity demanded, lower the price the greater is the quantity demanded and vice versa. 2. Price of a substitute and completive product: If the price of a commodity remains same the demand for this commodity may change if the prices of substitutes and complementary goods change. For example, gur is a substitute of sugar. Assume that the price of sugar increases, in that case if the price of gur remain unchanged, its demand will increase. 3. Income of buyers: Demand of a particular product also depends upon income of demanders. If the purchasing power of money increases or real income increases than demand of a particular product will go up. Again demand for a commodity will not increase with a fall in price if the income of the consumer decreases substantially. Contd… 4. Advertising: Demand for a particular product can be increased through advertising. As increase in advertisement will lead to a more than proportionate increase in sales. 5. Population: Composition of the population or size of the population which affects demand for certain commodities or service. 6. Season of the year: It is obvious that demand for a commodity must change with the change in season. In winter, there is a greater demand for worm clothing for certain types of torics and for coal of fuel. In summer, there is a great demand for electric fans room coolers and cooling drinks etc. 7. Availability of credit: Availability of credit facilities in terms of payment and service increase buyer’s ability to purchase a particular product. Contd… 8. Geographical location of buyer: Geographical location of buyers also influence in determining demand of a particular product. Demand per a product very due to change in geographical location of buyers. 9. Expected future in market: Expected future trend in market also determinate demand of a particular product. If price of a product may seem to increase in future than demand for that product may increase and vice versa. 10. Change in consumer taste: If with the change in habits and taste, consumer begin to take coffee instead of tea and even if two price of tea the demand for tea to that person will not increase. 11. Needs and preferences: If is quite obvious that if a consumer dustups market liquidity prudence, his demand for goods will decrease, because he prefers to keep with him ready cash instead of buying things. THANK YOU
