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Answers of MBA105 - MANAGERIAL ECONOMICS Questions 1: Explain the meaning and Features of demand forecasting?

Answer: Demand forecasting seeks to investigate and measure the forces that determine sales for existing and new products. Generally companies plan their business - production or sales in anticipation of future demand. Hence forecasting future demand becomes important. The art of
successful business lies in avoiding or minimizing the risks involved as far as possible and face the uncertainties in a most befitting manner. Thus Demand Forecasting refers to an estimation of most likely future demand for product under given conditions.

Important features of demand forecasting
·         It is an informed and well thought out guesswork.
·         It is in terms of specific quantities
·         A forecast is made for a specific period of time which would be sufficient to take a decision and put it into action.
·         It is based on historical information and the past data.
Demand forecasting is needed to know whether the demand is subject to cyclical fluctuations or not, so that the production and inventory policies, etc, can be suitably formulated.

Demand forecasting is generally associated with forecasting sales A firm can make use of the sales forecasts made by the industry as a powerful tool for formulating sales policy and sales strategy. They can become action guides to select the course of action which will maximize the firm’s earnings. To use demand forecasting in an active rather than a passive way, management must recognize the degree to which sales are a result not only of external economic environment but also of the action of the company itself.

Managerial uses of demand forecasting
Demand forecasting refers to an estimate of most likely future demand for a product, under the given conditions. Such forecasts are of immense managerial use, both in the short run as well as in the long run.
Now, we will discuss the managerial uses of demand forecasting in the short run and the long run.

In the short run
Demand forecasts for short periods are made on the assumption that the company has a given production capacity, and the period is too short to change the existing production capacity. Generally, it would be one year period. 

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