Case Problem: Forecasting Lost Sales – Summary Solution

Forecast of Sales for Carlson for the year 2000

Assuming No Hurricane Trend Forecast
2000 September 49 2.71 2.16
October 50 2.72 2.54
November 51 2.73 3.06
December 52 2.74 4.60

Forecast of Sales for all Department stores for the year 2000
Assuming No Hurricane Trend Forecast
2000 September 49 58.77 50.55
October 50 58.70 53.20
November 51 58.62 66.78
December 52 58.55 103.11

3. By comparing the forecast sales of all the department stores in the county with actual sales one can
determine whether or not there are excess storm-related sales. We have computed a "lift factor" as the
ratio of actual sales to forecast sales as a measure of the magnitude of excess sales.

Given Hurricane
Forecast Actual Lift
2000 September 50.55 69.0 1.37
October 53.20 75.0 1.41
November 66.78 85.2 1.28
December 103.11 121.8 1.18

From the analysis a strong case can be made for excess storm related sales. For each month, actual
sales exceed the forecast of what sales would have been without the hurricane.

The explanation for the increase is that people had to replace real and personal property damaged by
the storm. In addition, the additional construction workers, the disaster relief teams, and so on,
created additional commercial activity in the area.

4. One approach would be to use the forecast of what sales for the Carlson store would have been
without the hurricane and then multiply by the lift factor to account for the excess storm-related
sales. Such an estimate of lost sales is developed below:

Given Hurricane
Forecast Lift Actual
2000 September 2.16 1.37 2.95
October 2.54 1.41 3.59
November 3.06 1.28 3.90
December 4.60 1.18 5.43
15.86
Based on this analysis, Carlson Department Stores can make a case to the insurance company for a
business interruption claim of $15.86 million (Total lost Sales for four months).