DEMAND FORECASTING-Economic Analysis of Business

Economic Analysis of BusinessDemand Forecasting

Presented By: Abner B. DomingoProfessor: Dr. Melody Hate

Philippine School of Business Administration Quezon City

Graduate School of Business

Economic Analysis of Business-Demand Forecasting

Business Forecasting Objectives• The very objective of business forecasting is to

be accurate as possible, so that planning of resources can be done in a very economical manner and therefore, propagate optimum utilization of resources. Business forecasting helps in establishing relationship among many variables, which go into manufacturing of the product. Each forecast situation must be analyzed independently along with forecasting method.


Classification of Business Forecasting

• Economic forecasting -these forecasting are related to the broader macro-economic and micro-economic factors prevailing in the current business environment. It includes forecasting of inflation rate, interest rate, GDP, etc. at the macro level and working of particular industry at the micro level.

• Demand forecast -organization conduct analysis on its pre-existing database or conduct market surveys as to understand and predict future demands. Operational planning is done based on demand forecasting.

• Technology forecast- this type of forecast is used to forecast future technology up gradation.


Timeline of Business Forecasting

• Long term forecast: this type of forecast is made for a time frame of more than three years. This type of forecast are utilized for long-term strategic planning in terms of capacity planning, expansion planning, etc.

• Mid term forecast: this type of forecast is made for a time frame from three months to three years. These types of forecasts are utilized production and layout planning, sales and marketing planning, cash budget planning and capital budget planning.

• Short term forecast: this type of forecast is made from one day to three months. These types of forecast are utilized for day to day production planning, inventory planning, workforce application planning, etc.


Demand Forecasting

• The process of estimating the future demand of product in terms of a unit or monetary value.

• Forecasting the future level of demand• Involves predicting aggregate measures of

economic activity at the international, national, regional, or state level. E.g GDP, unemployment, interest rates by “blue chip’’ business.


Demand Forecasting

• GDP is the value at final point of sale of all goods and services produce in the domestic economy during a given period by both domestic and foreign-owned enterprises. GNP is the value at final point of sale of all goods and services produced by domestic firms.


Method of Forecast

• Subjective or intuitive method– Opinion polls, interviews– DELPHI

Idea or information is gathered from a set of people or experts on what is the demand likely to be appear.Advantage: relying upon the various knowledge based, and the experience of an individual, like share price, fluctuation.Disadvantage: subjective biased if you rely


Method of Forecast

• Method based on averaging of past dataTwo most commonly usedMoving averageExponential smoothing


Method of Forecast

• Regression Models on Historical DataTrend Extrapolation

Projection of what going to be.Limitation: essentially assume that whatever happen in the pass may continue to occur in the future as well.


Method of Forecast

• Causal or Econometric Models(also Regression Model)It can answer “what if question

What will happen to the demand if the variable is changing.

What if government policy changes.


Method of Forecast

• Time Series: Analysis using Stochastic Models– Box Jerkins Model– Generating the demand distributionAdvantage: accurate short term forecast


You will be surprised to know that in a survey carried out on method

of forecasting used by various industries was subjective and

intuitive of forecasting and not the other method


Difference of

Forecasting• Is essentially objective• Scientific discipline• Free from bias• Reproducible• Error analysis possible-

extent of error

Predictions• Subjective• Intuitive• Individual bias• Non-producible• Error analysis possible


Commonly observed “normal” demand patterns

Constant demand Linear trend

D D t t Cyclic trend Seasonal pattern D D

t t


Abnormal Demand Pattern

Transient impulse Sudden Rise

Sudden Fall


Opinion Polls

• Personal interviewsAggregation of opinions of sales

representative to obtain sales forecast of a region

Knowledge based (experience)Subjective bias- impair the accuracy


Opinion Polls

• Telephonic MethodAdvantage: Fast method in getting

information


Opinion Polls

• Questionnaire Method– Questionnaire design– Choice of respondents– Obtaining respondents– Analysis and presentation of results(forecasting)


Opinion Polls

• Delphi MethodA structural method of obtaining responses from

experts– Utilized the vast knowledge based of experts– Eliminate subjective bias and “ influencing” by members

through anonymity– Iterative in character with statistical summary at end of

each round, generally three rounds– Consensus (or divergent viewpoints) usually emerge at the

end of the exercise.


Forecast Using Delphi

Question: when does the petroleum reserve of the world come to an end?

Coordinator

Expert 1

Expert 2

Expert 3

2010

2011

2012

2013

2012

2012

2013

2013

2013


Category of Forecasting MethodMoving Average

Month Demand 3 Months MA 6 Months MAJan 500Feb 525Mar 575 533.33Apr 560 553.33May 600 578.33Jun 615 591.67 562.50Jul 595 603.33 578.33Aug 609 606.33 592.33Sept 696 633.33 612.50Oct 690 665.00 634.17Nov 700 695.33 650.83Dec 900 763.33 698.33


Philippine Economy posts 7.8 percent GDP growth

• HIGHLIGHTS• With the upbeat business and consumer sentiment, as well as sustained government capital expenditure, the Philippine

economy posted a 7.8 percent GDP growth in the first quarter of 2013 from 6.5 percent the previous year. The Q1 growth is the highest so far under the Aquino administration and also the third consecutive quarter of more than 7.0 percent GDP growth.

• • The robust growth was boosted by the strong performance of Manufacturing and Construction, backed up by Financial

Intermediation and Trade.• • On the demand side, increased consumer and government spending shored up by increased investments in

Construction and Durable Equipment contributed to the highest quarterly GDP growth since the second quarter of 2010.• • The continued inflow of remittances from our overseas workers accelerated the Net Primary Income from the Rest of

the World to grow by 3.2 percent boosting the Gross National Income (GNI) growth to 7.1 percent from 5.7 percent in 2012.

• • On a seasonally adjusted basis, GDP is gaining momentum growing by 2.2 percent in the first quarter of 2013; GNI

grew by 1.9 percent. All major sectors posted positive growth in seasonally adjusted terms for the first quarter of 2013. In particular, the entire Agriculture sector posted a growth of 0.8 percent in the first quarter of 2013 from 0.4 percent the previous quarter. However, Industry slowed down to 2.5 percent growth in the first quarter of 2013 from 4.0 percent in the previous quarter. But the Services sector accelerated to 2.2 percent in the first quarter of 2013 from 1.1 percent in the previous quarter as all its subsectors recorded positive growth. Positive growth in seasonally adjusted terms across major sectors has been resulting since the fourth quarter of 2010.

• • With the country’s projected population reaching 96.8 million in the first quarter of 2013, per capita GDP grew by 6.1

percent while per capita GNI grew by 5.3 percent and per capita Household Final Consumption Expenditure (HFCE) grew by 3.4 percent.



Ang sipag mo naman mag aral abner.Kahit holiday banat ka pa rin

ng banat. Sige bilisan mo. Sana maging Doctor ka

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DEMAND FORECASTING-Economic Analysis of Business

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