HSS002

ENGINEERING MANAGEMENT
UNIT-I
INTRODUCTION
Ms.S.DIVYA
Assistant Professor-I
Department of EEE
Kalasalingam university
KrishnanKoil-626 126.
DEMAND AND REVENUE ANALYSIS
• Demand Analysis
Demand Analysis seeks to search out and
measure the factors that determine sales.
Demand Analysis has two main managerial
purposes namely
 Forecasting Sales/Demand
 Manipulating Demand
 (A)FORECASTING DEMAND/SALES
• It is the foundation for planning of the company’s
operations such as purchase commitments, production
schedules, Inventory planning, cash budgets, capital
expenditure programs etc.
• Thus in any company, sales forecasts play an important
role in the whole scheme of things to come.
• Example
• In an Industry which is subjected to seasonal swings in
sales, there is an optimum production program which
minimizes the total costs by balancing the costs and
risks of inventory accumulation in slack seasons.
 (B)MANIPULATING DEMAND
• We usually think that sales forecasting is
passive since it estimates economic factors as
per today’s situation.
• But by the use of this forecast, it is possible to
manipulate the future demand and sales of
the product by suitable adoption of sales
policies and strategies and different course of
action at different level of sales.
 FACTORS INFLUENCING DEMAND
• Price of the product
• Buyers Income
• Price of Substitutes
• Advertising and Sales Promotion
• Population
• Availability of credit
• Season of the Year
• One’s Status
• Expected Future trend in prices
• Changes in Customer Tastes
• Need and Performances
• Changes in Customer’s credit facilities
• It is impossible to study all the factors (for a
product) that affect demand and sales, but
certain important factors for a particular
product is always necessary.
• The main demand determinants /factors are
Price
Income
Price of Related goods
Advertising
 LAW OF DEMAND
• The relation of price to sales is known as “Law
of Demand”.
• The law states that “higher the price, lower
the demand and Vice-versa, other things
remaining the same.
• The law of demand is also called as the “Price-
Quantity Relationship.
 Q=f(p)
• The equation showing that the quantity demanded is a
function of price is shown mathematically.
• The demand curve shows the price-quantity
relationship.
• The relation between demand and other variables are
not shown in the demand curve.
• The law of demand can be explained with the
following two reasons or effects namely
• Income Effect
• Substitution Effect
Due to fall in price of a commodity,
Income Effect the customer saves money and hence
his purchasing power increases.

Hence he becomes more potent to

purchase the same commodity and other
Commodities and Vice-Versa is also true
Due to fall in price of a product a
Substitution customer tends to purchase this product
Effect instead of other similar products
Hence the product becomes a substitute
for other products. The vice versa is also
true.
 Elasticity of Demand
• Demand elasticity is the percentage increase
in sales that accompanies a one percent
increase in any demand determinant.
• Elasticity is generally applied to the following
three determinants
• Price(P)-Price elasticity of demand
• Income(I)-Income elasticity of demand
• Promotional activities(P)-Promotional
elasticity of demand.
Types of Price elasticity
 Price of Related goods and Demand
• The demand for certain products are affected by changes in the
prices of related goods.
• Substitutes
Commodities are substitutes when one can be replaced by another.
Hence a change in the price of a commodity will lead to a change in
the demand for that commodity at the cost of some other
commodity.
Eg. Reduce the price of taxi charges. There will be increase in
demand for taxis at the cost of bus fares.
• Complements
Commodities are complements when a change in the demand for
one commodity leads to a change in the demand for some other
commodity in the SAME DIRECTION.
Eg. Cars and Petrol (Petrol is complement)
 Advertising Media
• Newspaper
• Magazines
• Radio
• Television
• Price Contests
• Direct mail
• Catalogues/Leaflets
• Exhibits/Displays/Samples
• Slides in Cinemas
• Good will gifts
• Discounts.
 REVENUE ANALYSIS
• Revenue is the total sales of the company.
• In business, revenue or revenues is income that a
company receives from its normal business
activities, usually from the sale of goods and
services to customers.
• Some companies also receive revenue from
interest, dividends or royalties paid to them by
other companies.
• Revenue may refer to business income in general,
or it may refer to the amount, in a monetary unit,
received during a period of time
 Demand Forecasting
• A forecast helps a firm to assess the probable demand for
its products and plan its production accordingly.
• (a)SHORT TERM FORECASTING
This type of forecasting can be defined when it covers a
period of one month to one year.
The period is dependent on the nature of business.
(b)LONG TERM FORECASTING
This type of forecasting can be defined when it covers a
period of 5,10 and even 20 years.
The period here also depends on the nature of business,
but beyond 12 months, the future assumed is uncertain.
 Methods of Demand Forecasting
• Survey of buyer’s intention or opinion surveys
This method customers are asked what they are thinking to buy in near future.

• Collective opinion or sales force polling

In this method salesmen are asked to estimate sales in their respective territories.

• Trend projections
A well established firm has considerate data on sales. These data are arranged in
chronological order called “TIME SERIES”.

• Economic Indicators.
In this method, forecasting is dependent on certain economic indicators which are
generally published by CENTRAL STATISTICAL ORGANISATION.
(A)Personal Income for the demand of consumer’s goods
(B) Agricultural Income for the demand of agricultural inputs, implements
(C) Construction contracts sanctioned for the demand of building materials.
(D) Registration of Automobiles for the demand of accessories, petrol
 PRODUCTION ANALYSIS
• Production is defined as the organized activity
of transforming raw materials into finished
products.
• Methods of Production
Job order production
Mass Production
Batch Production
 JOB ORDER PRODUCTION
• This is a method to meet the individual requirements
of the consumers.
• Each job order is separate and is not likely to be
repeated
• This type of production requires lot of flexibility in
operations and hence general purpose machines are
required.
• The factories adopting this type of production are
generally small in Size.
• Print shops, law firms, doctors, accounting firms, ship
building are examples of Job order production.
 MASS PRODUCTION
• This method is a large scale continuous
production.
• Mass production does not have any non
producing time i.e mass production is continuous
production.
• This type of production requires special planned
layout, special purpose machines, jigs and
fixtures, automatic machines.
• Eg. Cars, Furniture, clothing,Kitchen appliances
Food, games.
 BATCH PRODUCTION
• This type of production is adopted in medium size
enterprises. It is a stage between job and mass
production.
• Batch production is bigger in scale than job
production while it is smaller than mass
production.
• At this type of production more types of products
are manufactured in lots at regular interval,
therefore this is known as batch production.
• Bakeries, Pharmaceutical ingredients, purifying
water, inks, paints and adhesives.