Economics

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7.2 Purpose of forecasting demand

Business forecasting is an essential ingredient of corporate planning. Such forecasting enables the manager to minimize the element of risk and uncertainty. Demand forecasting is a specific type of business forecasting.

Concepts of Forecasting:

The manager can conceptualize the future in definite terms. If he is concerned with future event- its order, intensity and duration, he can predict the future.

If he is concerned with the course of future variables- like demand, price or profit, he can project the future. Thus prediction and projection-both have reference to future; in fact, one supplements the other. Suppose, it is predicted that there will be inflation (event).

To establish the nature of this event, one needs to consider the projected course of general price index (variable). Exactly in the same way, the predicted event of business recession has to be established with reference to the projected course of variables like sales, inventory etc.

Projection is of two types – forward and backward. It is a forward projection of data variables, which is named forecasting. By contrast, the backward projection of data may be named ‘back casting’, a tool used by the new economic historians.

For practical managers concerned with futurology, what is relevant is forecasting, the forward projection of data, which supports the production of an event.

Thus, if a marketing manager fears demand recession, he must establish its basis in terms of trends in sales data; he can estimate such trends through extrapolation of his available sales data. This trend estimation is an exercise in forecasting

Need for Demand Forecasting:

Business managers, depending upon their functional area, need...
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