Forecasting and Scenario Planning

Muthu Easwaran A Roll No. 184

Forecasts
Forecasting is the process of making statements about events whose actual outcomes have not yet been observed. A market forecast is a core component of a market analysis. It projects the future numbers, characteristics, and trends in your target market. The market analysis should lead to developing strategic market focus. This is the critical foundation of strategy Market forecasts must have a time horizon i.e. Short term, Medium term or Long term forecasts

Types of Forecasts
Economic Forecasts - include the prediction of changes in the GDP, inflation, unemployment rate. Environmental Forecasts - examine the environment in which a company operates. Market & Product Forecasts forecasts of the enduser markets into which products are sold and forecasts for the product itself. Sales Forecasts forecasts of a companys sales at different levels of sales and promotional effort

Role of Forecasts
Corporate Planning - enable the corporate planners to steer the future course of the company. Product & Market Planning - used to set objectives and establish budgets for promotion and selling Sales Planning - based on the forecast of sales which the company believes it can achieve Production Planning - designed to ensure that productive resources are available to manufacture the product mix. Financial Planning - drawn up using the budget and adding to them the overhead necessary to run the business.

Classification of Forecasts
Objective Methods Historical Analogy Moving Averages Exponential Smoothing Correlation and Regression Subjective Methods User Opinion Expert Opinion

Objective Forecasts
Historical Analogy
Forecasting based on a comparable product which is already well established Based on the product life cycle Enables marketer to predict future sales and replace or rejuvenate a product if necessary.

Moving Averages
Suitable method for predicting from a series of data which has shown regular historical patterns and where there is a long series Suitable means of predicting seasonal sales and those with an evident cycle.

Objective Forecasts
Exponential Smoothing
Exponential smoothing is a mathematical approach which applies weights. Like all methods of trend projection, it relies on a long series of data. Exponential smoothing is most suited to a series of data where there have been no wild fluctuations but a steady growth of decline which is accelerating or decelerating.

Correlation
Correlation is a statistical technique for demonstrating the relationship between two series of data. The validity of a forecast based on correlation depends on the accuracy of the forecast of the independent variable and the maintenance of the proven relationship into the future.

Subjective Forecasts
Survey of User Opinions
Marketers determine future trends by asking users how they foresee their consumption of a product or service changing. This data backed up by the marketer's knowledge of trends in the end-user markets and changing competition, could enable an informed prediction.

Survey of Expert Opinions

Forecasts in business-to-business markets, which rely on expert opinion Delphi interviewing is used whereby individuals' views are collected separately, analyzed and shared so that a respondent can review his or her earlier response in the light of the group think.

Scenario Planning
A group of analysts generate different scenarios which combine known facts about the future, with possible social, technical and political trends. Steps in Scenario Planning
Decide the critical variables to be analyzed Estimate time and scope of analysis Identify stakeholders and their interests Identify driving forces/trends Map the scenarios in two axes of importance and predictability Include written narrative, indicating key probabilities and events Asses/Review the scenarios