NOTE ON METHODS OF FORECASTING DEMANDS.

NAME: STEPHEN, EMMANUEL NSE

COURSE: ECO 811 (ADVANCED MICROECONOMICS)

The main challenge of forecasting demand is in the selection of an effective method.

Thus, we can say that the methods of demand forecasting are divided into survey
methods and statistical methods. The survey method is generally for short-term
forecasting, whereas statistical methods are used to forecast demand in the long
run.

Demand forecasting is predicting future demand for the product. In other words, it
refers to the prediction of probable demand for a product or a service on the basis of
the past events and prevailing trends in the present. The two most common methods
of forecasting demands are Survey method and statistical method.

The Survey method involves forecasting demand by collecting information regarding

the buying behaviour of consumers from experts or through conducting surveys. On
the other hand, the second method is to forecast demand by using the past data
through statistical techniques.

The methods of forecasting can be classified into two broad categories:

SURVEY METHODS

Under the survey method, the consumers are contacted directly and are asked about
their intentions for a product and their future purchase plans. This method is often
used when the forecasting of a demand is to be done for a short period of time. The
survey method includes:

a) Consumer Survey Method

b) Opinion Poll Methods

Consumer Survey Method is one of the techniques of demand forecasting that

involves direct interview of the potential consumers. Consumer Survey Method
includes the further three methods that can be used to interview the consumer:
 i. Complete Enumeration Method

ii. Sample Survey

iii. End-use Method

Complete Enumeration Method: Under this method, a forecaster contact almost all
the potential users of the product and ask them about their future purchase plan. The
probable demand for a product can be obtained by adding all the quantities indicated
by the consumers.

Sample Survey: The sample survey method is often used when the target
population under study is large. Only the sample of potential consumers is selected
for the interview. A sample of consumers is selected through a sampling method.

End-use Method: The end-use method is mainly used to forecast the demand for
inputs. This method of demand forecasting has a considerable theoretical and
practical value. Under this method, a forecaster builds the schedule of probable
aggregate future demand for inputs by consuming industries and several other
sectors.

THE OPINION POLL METHODS.

The Opinion Poll Methods are used to collect opinions of those who possess the
knowledge about the market, such as sales representatives, professional marketing
experts, sales executives and marketing consultants. The Opinion poll methods
include the following survey methods: i.
Expert-Opinion Method.
ii. Market Studies and Experiments.
Iii. Delphi Method.

STATISTICAL METHODS.
The statistical methods are often used when the forecasting of demand is to be done
for a longer period. The statistical methods utilize the time-series (historical) and
cross-sectional data to estimate the long-term demand for a product. The statistical
methods are used more often and are considered superior than the other techniques
of demand forecasting due to the following reasons:

There is a minimum element of subjectivity in the statistical methods.

The estimation method is scientific and depends on the relationship between

the dependent and independent variables.

The estimates are more reliable

Also, the cost involved in the estimation of demand is the minimum.

The statistical methods include:

i. Trend Projection Methods
ii. Barometric Methods
iii. Econometric Methods

The Trend Projection Method is the most classical method of business forecasting,
which is concerned with the movement of variables through time. This method
requires a long time-series data.

The Barometric Method of Forecasting was developed to forecast the trend in the
overall economic activities. This method can nevertheless be used in forecasting the
demand prospects, not necessarily the actual quantity expected to be demanded.

The Econometric Methods make use of statistical tools and economic theories in
combination to estimate the economic variables and to forecast the intended
variables.

These are the different kinds of methods available for demand forecasting. A
forecaster must select the method which best satisfies the purpose of demand
forecasting.