Demand Forecasting

• Forecasting is predicting the future

• Why forecast demand?
• Methods

1 Opinion-based or Experimental
2 Time Series Analysis
3 Barometric Forecasting
 Opinion based or Experimental
Methods

Delphi Surveys Market

Experiments

Delphi method: based on experts’ opinion

Surveys: surveys of investment plans or consumer
plans
Market Experiments: collecting data from a test
market
 Time Series Analysis

Trend Exponential
Projections Smoothing
 Trend Projection

Graphic Statistical Seasonal

curve fitting curve fitting variation
Graphic curve fitting: the trend is projected graphically
 Statistical Curve Fitting

• Constant Rate of Change: Yt = Y0 + b t

• Constant Percentage Rate of Change:

Yt = Yt – 1 (1+g)
 Yt = Y0 (1+g)t
 ln Yt = lnY0 + t ln (1+g)
 Seasonal Variation in Time Series
Ratio-to-trend approach:
Actual value
The forecasts are adjusted with average of
Predicted value
 Exponential Smoothing
Ft = α Yt + (1 - α) Ft – 1

Ft : Forecast of Period t
Yt : Actual observation at period t
α : smoothing constant

α should minimize the sum of squared forecast

error = ∑ (Yt – Ft)2.
 Barometric Forecasting
Indicator Series : when one series is correlated
with another one then the second one is called
the indicator of the first one.

Coincident Indicator : when both the series

moves together

Leading Indicator : when the indicator series

moves ahead of the other one
• Composite Index : when there are more than
one indicators then composite index is
prepared as a weighted sum of all the leading
indicators

• Diffusion Index : it is computed as a

percentage of those indicators which are
increasing