1. IB Business Management
4.3 Sales Forecasting

2. Learning Outcomes
To be able to calculate up to a four-part moving average including:
- Seasonal
- Cyclical
- Random
- Variation
Using given data (A04)
To understand, apply and analyse the benefits and limitations of sales forecasting (A03)

3. Essential Question
How important is it for a business to have an accurate prediction of sales?
How can they do this? 1
Not at all important 10
Vital

4. “The process of predicting what a firm’s
Sales forecasting
“The process of predicting what a firm’s
future sales will be”

5. Sales Forecasting
It is not only useful to be able to know where the business is now
Businesses also want to be able to make predictions about what will happen in the future
This is difficult as there are lots of variables to consider

6. Importance of Sales Forecasting
Reduces uncertainty
Improves stock management
Improves cash flow management
Minimise waste, maximise opportunities, improve efficiency
Improved planning for growth
To help make informed decisions
Easier to secure external sources of finance
BUT HOW/WHY DOES SALES FORCASTING ACHIEVE THE ABOVE?

7. What information would firms need in order to forecast future demand?
Current sales data
Current market demand
Market trends
Economic data
Competitor information

8. Sales Forecasting Techniques
Time Series Analysis – quantitative sales forecasting method which considers:
- Sales Trends
- Seasonal fluctuations
- Cyclical fluctuations
- Random fluctuations
Extrapolation – Once past trends and patterns established, a more informed judgment can be made about the future. Represented by a dotted line on a chart.

9. Time-Series Analysis
Used to analyse movements of sales over a time period – usually years, quarters, months, etc.
Importance of assessing the:
Trend
Seasonality
Key moments
Magnitude

10. Moving Averages
Used to help extrapolate data that may have fluctuations.
Averages are calculated and plotted in order to smooth out spikes or dips

11. Three - Year Moving Average
Open up the “Moving averages” document on Haiku – we will go through.

12. Four - Year Moving Average
P.368 in new Hoang – lets practice first!
MONTH/
YEAR
SALES ($)
(‘000’s)
4 POINT MOVING AVERAGE
CENTRED
VARIATION 1 20 2 30 3 40 4 5 60

13. Task Acosta Adventures p.371
Download the Excel sheet from Haiku and use formulas to calculate the 4 point moving average
Centre the results from the 4 point moving average
Calculate the variance from the actual sales
Extrapolate the trend for quarter 4 of next year

14. Task Acosta Adnentures p.369
Download the Excel sheet from Haiku and use formulas to calculate the 4 point moving average
Centre the results from the 4 point moving average
Calculate the variance from the actual sales

15. Extrapolation A method used to look in the short term future.
Involves identifying trends and extending this to predict future sales.

16. How might we extrapolate the following?

19. Choosing a method
(1) The degree of accuracy required – if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. However, this involves more cost
(2) The availability of data and information - in some markets there is a wealth of available sales information (e.g. clothing retail, food retailing, holidays); in others it is hard to find reliable, up-to-date information
(3) The time horizon that the sales forecast is intended to cover. For example, are we forecasting next weeks’ sales, or are we trying to forecast what will happen to the overall size of the market in the next five years?
(4) The position of the products in its life cycle. For example, for products at the “introductory” stage of the product life cycle, less sales data and information may be available than for products at the “maturity” stage when time series can be a useful forecasting method.

20. Benefits of Sales Forecasting
Improved working capital and cash flow
Improved stock control
Improved productive efficiency
Helps secure external finance
Improved budgeting

21. Limitations of Sales Forecasting
Limited information
Inaccuracy of predictions
Reliability of forecast reliant upon the reliability of data being used
External environment can change unexpectedly and affect sales positively or negatively but can’t be predicted in the forecast
Quantitative and does not account for potential qualitative factors e.g. social trends

22. Concepts - CUEGIS
How is sales forecasting relevant to the concepts?