Market Analysis & Forecasting Trends Businesses attempt to predict the future – need to plan ahead Why?

Why do businesses need to forecast? Businesses need to know what is happening in their industry. Is it growing? The forecast for sales volume and revenues will form the basis for many plans. For example: – HR. How many staff will be needed? Training? – Production planning and scheduling. Any more equipment needed? – Stocks: stock levels will depend on production and demand over a period – Cash flow forecast will depend on revenues and the payment period

Next one in the series Next one in the series: 120,130,140,150,160, ? 3,6,9,12,15,18, ? 2,4,8,16,32,64, ? 1,2,3,2,3,4,3,4,5,4,5, ? 120,110,115,130,112,121,133,121 12,24,32,18,79,45,62,89,34, ? Forecasting is the use of existing data to predict future trends

What is your forecast for the next year?

Techniques The trend is your friend. Finding the trend This will tell you if the general movement in sales volume/revenues is up or down Often find either seasonal, cyclical or other variations in sales: – Seasonal. Could be different items at different times during the year – Cyclical – economic cycle – Other (random) factors – the weather

Moving averages If sales or revenues vary over quarters of the year, then average out over 3 months If it is every 3 years, then average over 3 years. For 3 month moving average we would 1.Take 3 months (the previous, current and next month) and add up 2.Divide by 3 to get the average Month Revenue £000 Three-period total Three-period moving average Jan-1160 Feb Mar Apr May-1162

Example Month Revenue £000 Three-period total Three-period moving average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May-12113

Revenues and 3 period moving average

New question Year Revenue £000 Three-period total Three-period moving average

New numbers

Uses and Limitations: can we really forecast the future based on the past? Data must be reliable Trends can change (photographic film?) Recent data is better than old data