Page 104 - DMGT521_PROJECT_MANAGEMENT

Unit 7: Market and Demand Analysis

when it comes to working out methods and methodologies of demand forecasting, it presents a Notes
strange dilemma. Demand Burke had said that, “You can never plan the future by the past”,
whereas Patrick Henry opines that, “I know of no way of judging the future but by the past”.
As an essential part of project formulation and appraisal, market and demand analysis is vital so
that capacity and facility location can be planned and implemented in line with the market
requirements. A major error in demand forecast can throw painstaking capita expenditure on
plant capacity and other hardware facility totally out of gear. Such decisions are not easily
reversible. Metal Box of India, a premier company in the field of metal, plastic and cardboard
packaging became kick owing to ill-timed diversification into manufacture of bearings.

7.1 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.
Companies use market demand analysis to understand how much consumer demand exists for
a product or service. This analysis helps management determine if they can successfully enter a
market and generate enough profits to advance their business operations. While several methods
of demand analysis may be used, they usually contain a review of the basic components of an
economic market.

7.1.1 Market Identification

The first step of market analysis is to define and identify the specific market to target with new
products or services. Companies will use market surveys or consumer feedback to determine
their satisfaction with current products and services. Comments indicating dissatisfaction will
lead businesses to develop new products or services to meet this consumer demand. While
companies will usually identify markets close to their current product line, new industries may
be tested for business expansion possibilities.

7.1.2 Business Cycle

Once a potential market is identified, companies will assess what stage of the business cycle the
market is in. Three stages exist in the business cycle: emerging, plateau and declining. Markets
in the emerging stage indicate higher consumer demand and low supply of current products or
services. The plateau stage is the break-even level of the market, where the supply of goods
meets current market demand. Declining stages indicate lagging consumer demand for the
goods or services supplied by businesses.

Notes Companies will use market surveys or consumer feedback to determine their
satisfaction with current products and services.

Did u know? Demand forecasts at national level include parameters like national income,
expenditure, index of industrial and/or agricultural production etc.

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