Two Methods of Making Forecast

1. Qualitative Forecasts
2. Quantitative Forecasts

About Demand Forecasting

When decision-makers in an organization would forecasts, they have to keep in mind

that any slight mistakes would incur losses towards the organization. Remember, overstocking
of goods means the capital would be stock up. If there would be shortage of goods, however,
the firm would incur opportunity lost because there might be high demand that the firm could
no longer provide the demand anymore due to poor anticipation of future demand. That’s why
it is very important for a firm to enable it to produce the required quantities at the right time
and arrange well in advance for various inputs.

Purpose of Demand Forecasting

– to be able to plan better and allocate the limited resources of the organization. That’s
why any mistake would mean loss on the part of the firm and there should be production
scheduling – it’s not about when to schedule to produce, it’s about how much to be produced
in every unit.

Objective of Demand Forecasting

– to ensure that there is no leakage in the production, meaning there is continuity of

production because the demand for goods especially basic goods are being constantly
produced.

Types of Methods in Demand Forecasting

1. Survey Method – is a type of a quantitative, the most common method because it uses a
tool or a questionnaire. You are gathering data based only on the questions contained in
the questionnaire.
2. Delphi Method – qualitative
3. Nominal Group – qualitative

Delphi Method and Nominal Group Technique difference

In Delphi method, the forecasts is solely based on the opinion of the expert whereas in
nominal group technique, the opinion of the experts would provide guidance and insights
based on their expertise or their experience to other employees or members or even the top
management of the organization, meaning it’s not the expert that will decide but the people as
well.
Time Series Analysis and Forecasting – another type of quantitative research, usually the basis
of forecasting are the past data – only one period but data from different period, meaning the
events of the past would be the basis on the forecast for the future.

REGRESSION ANALYSIS

Demand Estimation

- Is a prediction focusing on future consumer behavior. It predicts demand for a

business’s products or services by applying sets of variable.
- Changes in consumer income levels will affect product demand. Changing in price will
affect demand, etc.
- Once armed with this information, managers can then begin to make strategic business
decisions.
- Demand estimation attempts to quantify the links between the level of demand and the
variables which determine it.

Regression Analysis

- A set of statistical methods used for the estimation of relationships between a

dependent variable and one or more independent variables. It can be utilized to assess
the strength of the relationship between variables and for modeling future relationship
between them.
- Applications of regression are numerous and occur in almost every field, including
engineering, physical and social sciences, and the biological sciences.

So it’s possible that there could be one independent variable on more dependent variable
or the other way around. The relationship between the dependent and the independent
variable could be measured in its strength or it could be how the variables move together or
it could be positive.

Positive relationship – the dependent and independent variable moves in the same
direction. For instant, time and prices. As time increases or move forward, the prices also
increases.

Negative Relationship – like for instant more climatic disturbance like typhoon, earthquake
or any other type of calamities, the prices of the goods will go down.

Curvilinear Relationship – the dependent and the independent variable moves together at
the same point and beyond that point, the independent variable increase while the other
goes down. Let us say, the age and the height. As age increases, initially, there is a tendency
that our height will decrease or go down.
 How do we measure slope?

Change in the y-axis over the change in the x-axis. So the slope is the positive b because
any upward sloping slope means there’s a positive value.

Positive Relationship – Positive Slope

- As the independent variable increases, the dependent variable also increases. That’s
why the two variables move into one direction and is represented by an upward sloping
slope.

Negative Relationship – Negative Slope

- The independent variable increases, the dependent variable decreases. So, that’s why
graphically it’s represented by downward sloping curve, meaning the independent
variable and dependent variable moves at the opposite direction. So, there is an
opportunity cost.