MANRECO
Demand
Forecasting
Demand Forecasting
● a systematic process that involves
anticipating the demand for the product
and services of an organization under a
set of uncontrollable and competitive
forces
● It is a method of using historical sales
data to evaluate future customer demand
for a specific product and examine the
sales of a specific product scientifically
over a period of time (as the basis for
ordering and inventory decisions)
Importance of Demand
Forecasting
- a critical tool that enables
accountants to make data-driven
financial decisions, optimize resource
allocation, and manage financial risks
effectively.
- through incorporating demand
forecasts into their financial planning
and analysis, accountants contribute
significantly to the overall financial
health and success of their
organizations
1. Budgeting and Financial Planning
➢ accountants can use demand
forecasts to create accurate budgets
for the upcoming fiscal year.
2. Cost Control
➢ accountants can identify periods of
high demand and plan production
schedules more efficiently.
➢ helps in optimizing resource
utilization and reducing overtime
costs
3. Inventory Management
➢ accountants can work with inventory
managers to establish optimal stock
levels based on demand forecasts
➢ prevents overstocking or
understocking, reducing holding
costs and the risk of obsolete
inventory
4. Pricing Strategy
➢ demand forecasts can inform pricing
decisions.
➢ if demand is expected to be high for a
limited-time offer, the accountant can
recommend a premium price.
Conversely, if demand is expected to
be low for a particular product, the
accountant can suggest discounting
to clear excess inventory
5. Cash Flow Management
➢ accurate demand forecasts help
accountants project cash flows more
precisely
➢ can anticipate when revenues will
increase, enabling them to plan for
necessary working capital, debt
repayment, or investment in growth
opportunities.
6. Risk Mitigation
- accountants can use demand
forecasts to assess and manage
financial risks
- if demand for a critical component is
expected to be uncertain due to
supply chain disruptions, they can
budget for potential cost increases or
explore alternative sourcing options
7. Tax Planning
- accountants can use forecasts to
estimate future taxable income,
allowing them to plan for tax
liabilities and take advantage of tax
incentives or deductions
8. Strategic Decision-Making
- when a company plans to expand its
product line or enter new markets,
demand forecasting provides
valuable insights
- accountants can evaluate the
financial feasibility of such strategic
moves by analyzing the expected
demand and associated costs
9. Performance Evaluation
- accountants can compare actual sales
and financial performance to
forecasted figures.
- helps identify discrepancies and
enables proactive adjustments to
strategies and budgets. For instance,
if actual sales fall short of forecasts,
accountants can investigate the
causes and recommend corrective
actions.
Steps in Demand Forecasting
1. Identification of Business Objectives
2. Determining the nature of Goods
▪ different goods have their own
special demands
3. Determining the time period
▪ Based on the set target
▪ Short-term (determinants remain
unchanged
▪ Long-term (determinants change)
4. Selecting a method to use for demand
forecasting
▪ Choose a method that best suits the
requirement
5. Collection and adjustment of data
▪ Primary or secondary
▪ Both
6. Estimation and Interpretation of results
▪ Finalize the demand forecasting
method
▪ Evaluate the demand for the
pre-defined period
▪ Estimates appear as equations
▪ Result is interpreted and
represented in an easy and accessible
form
 b. Barometric Technique
● used by recording events in the
present to forecast the future using
statistical analysis, like leading series,
Demand Forecasting concurrent series, or lagging series
Methods c. Econometric Forecasting Technique

1. Qualitative Method ● uses autoregressive integrated

moving average, and complex
a. The Delphi Technique -
mathematical equations to create
● Each expert generate a forecast of relationships between demand and
their elected specific segment, and factors affecting demand.
reads our forecast ● An equation is developed and
● Every expert influences other expert. fine-tuned to assure a reliable
A consequent forecast is again historical representation
produced by all experts.
● Process is repeated until all experts
achieve an agreed scenario.
b. Sales Force Opinion
● predicts the estimated future sales in
their region
● Estimates are aggregated to calculate
the estimated future sales; managers
sets up the final version of the
demand forecast
Step by Step process in Sales
c. Market Research
Projections
● Customer specific survey are used Step 1: Gather Historical Sales data
Step 2: Clean and Analyze the data

2. Quantitative Method Step 3: Define your projection period

a. Trend Projection Technique Step 4: Choose a projection method

● used with large sales data history Step 5: Calculate the growth rate
over 18 to 24 months. Step 6: Apply the growth rate to Projections
● historical data sets up a time series
Step 7: Account for special factors
which illustrates past data and
projected demand by graphical Step 8: Review and Refine
method or least-square method

Tools in Demand
1. Budget and Financial Planning
Tool: Historical Sales Growth
Calculator
- calculate the average historical sales
growth rate over the past few years
and apply it to the current year's
sales to forecast future revenue.
Adjust for any known market trends
or events
2. Cost Control
Tool: Seasonal Cost Adjustment
Spreadsheet
- create a spreadsheet that adjusts
production and labor costs based on
historical demand patterns
3. Inventory Management
Tool: ABC Analysis Worksheet
- categorize inventory items into A, B,
and C categories based on their value
or turnover rate. Set different
reorder points and restocking
frequencies for each category
4. Pricing Strategy
Tool: Price Elasticity Calculator
- historical sales data and pricing
information to calculate price
elasticity for different products. This
helps you determine how price
changes will affect demand
5. Cash Flow Management
Tool: Cash Flow Forecast Template
- create a cash flow projection
template that includes expected cash
inflows (sales and receivables) and
outflows (expenses, loan
repayments). Update it regularly to
monitor cash flow.
6. Risk Mitigation
Tool: Scenario Analysis Matrix
- develop a matrix that outlines
potential risks (e.g., supply chain
disruptions, economic downturns)
and their impact on demand. Assign
probabilities and consequences to
each scenario for risk assessment
7. Tax Planning
Tool: Sales-Based Tax Estimator
- estimate tax liabilities based on
forecasted sales and applicable tax
rates. Consider tax incentives and
deductions to calculate the final tax
burden
8. Strategic Decision-Making
Tool: Market Trend Report
- compile market research and trend
analysis into a report. Highlight key
findings, growth opportunities, and
potential risks to support strategic
decision-making.