Overview

Forecasting is the 'science' of predicting demand. The forecast is generally formulated either from historical trends where past performance is 'scientifically' extrapolated into a future predicted trend, or from market information that considers potential sales in a particular market, perhaps as a result of some market-changing event. For example, will road fund licence reductions for vehicles with engines up to 1100 cc affect the levels of demand for smaller cars?

Forecasting is the formulation of a statistical matrix that may be derived from sales data analysis, which would include the determination of details such as product ratios, seasonal variations and product life cycle position, then extrapolated for trend analysis and strategic planning. The raw statistical data requires interpretation by sales and/or marketing to assess variable factors such as new product launches by key competitors, planned price increases and any details that may have influenced base data about sales. Without this review the forecast based on historical data alone could be highly unreliable

A forecast, however competently collated, is still a prediction. Its accuracy will need to be tracked against actual trends. The forecast is a best estimate of likely sales used to assist decision-making processes in areas such as strategic planning, budgeting, resource allocation and investment.

Indirect Extrapolation

Forecasting future demand for a product with no previous history could be achieved by assessing the number of potential customers. For example, suppose the new product in question is a cough mixture. Historical sales and trends of similar products could be...