DEMAND FORECASTING

• In the modern competitive environment, an organization

must have some idea about the demand for its products.
• The high degree of business uncertainty makes it difficult for
managers to predict future sales volumes of their products
and decide how a company can use its scarce resources
effectively. Demand forecasting helps managers to solve these
problems to a large extent.
• Macroeconomic forecasting includes predicting economic
aggregates such as inflation, unemployment, GDP growth,
short-term interest rate and trade flows.
• Forecasting future demand requires relevant information
gathered at the right time.
• There are several techniques used for demand forecasting.
These can be divided into qualitative and quantitative
techniques.
• Qualitative techniques include expert opinion, surveys and
market experiments while quantitative techniques are time
series analysis and barometric method.
• For new products and for those products for which long
historical data is not available,Survey methods of forecasting
are used.In case,long historical data is available,then one can
use statistical methods of forecasting.
 PRODUCTION PLANNING AND COST
REVENUE DECISION
• The production function is a technological relationship
between the output and various inputs used in production.
• The input used in production can be land,labour,capital or
technology.The output depends on increasing function of all
the factor inputs.
• All the factor inputs are not equally important in different
cases.For example:-in case of the agriculturebproduction
function,land is very important factor input.On the other
hand,in case of industrial production function,labour or
technology may be important.
• Cost and revenue are two major factors with which the profit
maximising firms need to deal wisely.They jointly determine
the overall profitability.
• From the decision making point of view,cost is more
important than revenuebecause the firmcan influence cost
more easily than revenue.
• Cost is one of the most important factors,which is also
cosidered for future decisions.further a manager has to
analyse the planning as well as short-term plans.
 STUDY OF ECONOMIC ENVIRONMENT
Economic environment is the most significant component of the
business environment.It affects the survival of a business
organisation as well a its success.The economic environment of
industry can be studied under broad categories.
• General economic conditions:These are influenced by various
factors like agriculture trends,per capita income
trends,pattern of saving and expenditure,price levels,empact
of govt. policies and economic systems.
• Industrial conditions:Economic environment of a country is
influenced by the prevalent industrial conditions as well as
industrial policies of a country.As economy needs to pay
attention to the market growth of the industry.
• Stage of supply of resources of production:Supply of resources
required for production determines inputs,which are available
for product.Land,labour,capital,machinery and managers are the
most important resources required for production.These factors
determine the economic environment of a country.
To sum up,economic environment describes the
overall ecomonic situation in a country and helps in analyzing GNP
per capita,rate of growth,inflation rate,interest
rates,umemployment problems etc.
 PRICING AND RELATED DECISIONS
 The price output decisions are taken under various market
structure.There are 4 important market structures namely:-
• Perfect competition
• Monopoly
• Monopolistic
• Oligopoly
 Pricing decision is the decision taken by the firm in fixing the
price.The decision must be appropriate for achieving the
desired objectives.Some of the pricing methods are:-
• Cost based pricing:Types of cost based pricing are:-
1. Markup pricing(cost plus pricing).
2. Absorption cost pricing.
3. Marginal cost pricing.
• Demand based pricing.
The pricing decision is also depending on demand and
supply of the commodity.Types of demand based pricing are:-
1.Skimming pricing:Initially the products will be
introduced in a high price and subsequently settle down for a
lower price.
Example:Mobile phones,television etc most of the electronic
items.
• Penetration pricing:-
1.Initially introduced at a lower price and increases its price as its
demand in the market increases.
2.Good to capture new market.
3.Opposite of skimming.
Example: DTH services,Magazines,TV channels etc.
Cost pricing,Marginal cost pricing,Dual pricing,price
discrimintion,Price skimming etc., pricing practices are followed
in these market forms.
 Investment decisions
Business firms invest large money in their firms.In the business
sector itself,individual firms compete among themselves for
access to financial resources.The business sector has also to
compete for its share against major claim in resources of the
investing individuals.The capital expenditure decisions are
important as they are not easily reversible.They generally involve
large sums of money they are highly futuristic.These investment
decisions are therefore popularly known as capital budgeting
decisions.
3 types of capital budgeting decisions are:-
1.Accept or reject decisions:-basically all those proposels which
give a better rate of return than the required rate of return are
accepted and others are rejected.
2.Mutually exclusive project decision:-When projects compete
with one another and acceptence of one will exclude acceptence
of another,in such cases,all these projects must,on their own
qualif as independent projects,which means that the one giving
better returns among these should be accepted.
3.Capital rationing decisions:-The earlier 2 cases involve
availability of unlimited funds.But,there are occasions,when the
firm has only limited funds available for investment proposels
being considered.
BY SHEFALI DEVGAN