Quantitative sales forecasting

Question 1

Time-series analysis

Answer 1

A method that allows a business to predict future levels from past figures

Main 4 components identified in time-series analysis:
Trend
Seasonal fluctuations
Cyclical fluctuations (fluctuations that are repeated many times in same order)
Random fluctuations

Trend can be calculate using a moving average:

1. Add up the first 3 figures
2. Divide the answer by 3
3. Move up one number across the 3-point average can be calculated for the next 3 set of figures

ex. when calculating 3-point moving average for jan, feb and mar, the second set excludes jan and includes feb, mar and apr. Continue this till the end

Question 2

Interpretation of scatter graph

Answer 2

Line of best fit- a line drawn through the centre of a group of data points plotted on a scatter graph. shows correlation

Correlation coefficient- a measure of the extent of the relationship between two sets of variables. can be calculated using formula

\+1= positive correlation 
-1= negative correlation 
0= no correlation

Question 3

Limitations of quantitative sales and forecasting techniques

Answer 3

They are powerful tools used to help make important business decisions, however they can still lead to errors.

May lack detail- correlations do not show cause and effect

Extrapolation (forecasting future trends based on past data) can be reductionist- just because there has been a 6% increase in sales over the past 3 years doesn’t mean it’ll continue