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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, ?120,110,115,130,112,121,133,12112,24,32,18,79,45,62,89,34, ?
• Forecasting is the use of existing data to predict future trends
What is your forecast for the next year?
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201130.00
35.00
40.00
45.00
50.00
55.00
60.00
Car sales (m)
Car sales (m)
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 up2. Divide by 3 to get the average
Month Revenue£000
Three-periodtotal
Three-periodmoving average
Jan-11 60 Feb-11 50 150 50Mar-11 40 156 52Apr-11 66 168 56May-11 62
ExampleMonth Revenue
£000Three-period
totalThree-period
moving average
Jan-11 100 Feb-11 86 273 91Mar-11 87 282 94Apr-11 109 291 97May-11 95 294 98Jun-11 90 291 97Jul-11 106 294 98Aug-11 98 291 97Sep-11 87 300 100Oct-11 115 300 100Nov-11 98 312 104Dec-11 99 315 105Jan-12 118 324 108Feb-12 107 330 110Mar-12 105 336 112Apr-12 124 342 114May-12 113
Revenues and 3 period moving average
Jan-11
Feb-11
Mar-1
1
Apr-11
May-1
1Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-1
2
Apr-12
May-1
2Jun-12
60
70
80
90
100
110
120
130
New questionYear Revenue
£000Three-period
totalThree-period
moving average
1995 120 1996 110 345 1151997 115 355 1181998 130 357 1191999 112 363 1212000 121 366 1222001 133 375 1252002 121 381 1272003 127 393 1312004 145 405 1352005 133 416 1392006 138 425 1422007 154 436 1452008 144 449 1502009 151 2010
New numbers
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201290
100
110
120
130
140
150
160
170
Revenue£000Three-periodmoving average
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
