Page 29 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Fundamentals of Project Management

Notes 2.4 Market Analysis and Demand Analysis

Forecast vs. Prediction

Forecast is an estimate of future events and trends and is arrived at by systematically combining
past data and projecting it forward in a predetermine a manner. Prediction is an estimate of
future events and trends in a subjective manner without taking into account the past data. The
subjective considerations may not emerge from any predetermined analysis or approach.

Time Horizon of Demand Forecasting

Market and demand analysis of various types are undertaken to meet specific requirements of
planning and decision-making.
For example, short-term decisions in production planning, distribution etc and selling individual
products would require short-term forecast, up to one year time horizon, which must he fairly
accurate for specific product items. For long-term planning, time horizon being four to five
years, information required from demand analysis would be for broad product groups for
facilitating choice of technology, machine tools and other hardwares and their location.
Longer-term forecasting is also undertaken to determine trends in technology development so
as to choose the technology for backing up and funding its research and development.
Need for Demand Forecasting

All business planning starts with forecasting capital investment, like procurement of raw
materials and production planning, has to relate to demand forecasting. High volume high
technology mass production systems have further highlighted the importance of accurate demand
forecasts. Even in a batch type production, any major mismatch between forecast and manufacture
will lead to higher capital tied up in finished products which are slow in selling.
Uncertainties in Demand Forecasting

Demand forecasting is the estimate of future demand. As the future is always uncertain, forecasting
cannot be completely fool proof and correct. However, the very process of forecasting demand
in future involves evaluating various forces and factors which influence demand. This exercise
is very rewarding in itself as it enables the personnel to know about various market forces,
currents, cross-currents and undercurrents relevant to the demand behavior.
Levels of Demand Forecasting

Demand forecasting can be at the level of a firm or an industry or at the national or national or
international level:
1. Firm Level: If the exercise aims at forecasting demand of firms products locally at state,
region or national level, it is a micro-level of demand forecasting. Sometimes, forecasts
are required for company products in specific industry or market segment.

2. Industry Level: Such a demand forecasting exercise focuses on an industry as a whole for
the region and/or national level. These forecasts may be undertaken by a group of
companies or by industry/trade associations.
3. National Level: Demand forecasts at national level include parameters like national income,
expenditure, index of industrial and/or agricultural production etc. Estimating aggregate

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