# Market Analysis & Forecasting Trends Businesses attempt to predict the future – need to plan ahead Why?

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Market Analysis & Forecasting Trends Businesses attempt to predict the future – need to plan ahead Why?

Why do businesses need to forecast? Businesses need to know what is happening in their industry. Is it growing? The forecast for sales volume and revenues will form the basis for many plans. For example: – HR. How many staff will be needed? Training? – Production planning and scheduling. Any more equipment needed? – Stocks: stock levels will depend on production and demand over a period – Cash flow forecast will depend on revenues and the payment period

Next one in the series Next one in the series: 120,130,140,150,160, ? 3,6,9,12,15,18, ? 2,4,8,16,32,64, ? 1,2,3,2,3,4,3,4,5,4,5, ? 120,110,115,130,112,121,133,121 12,24,32,18,79,45,62,89,34, ? Forecasting is the use of existing data to predict future trends

What is your forecast for the next year?

Techniques The trend is your friend. Finding the trend This will tell you if the general movement in sales volume/revenues is up or down Often find either seasonal, cyclical or other variations in sales: – Seasonal. Could be different items at different times during the year – Cyclical – economic cycle – Other (random) factors – the weather

Moving averages If sales or revenues vary over quarters of the year, then average out over 3 months If it is every 3 years, then average over 3 years. For 3 month moving average we would 1.Take 3 months (the previous, current and next month) and add up 2.Divide by 3 to get the average Month Revenue £000 Three-period total Three-period moving average Jan-1160 Feb-115015050 Mar-114015652 Apr-116616856 May-1162

Example Month Revenue £000 Three-period total Three-period moving average Jan-11100 Feb-118627391 Mar-118728294 Apr-1110929197 May-119529498 Jun-119029197 Jul-1110629498 Aug-119829197 Sep-1187300100 Oct-11115300100 Nov-1198312104 Dec-1199315105 Jan-12118324108 Feb-12107330110 Mar-12105336112 Apr-12124342114 May-12113

Revenues and 3 period moving average

New question Year Revenue £000 Three-period total Three-period moving average 1995120 1996110345115 1997115355118 1998130357119 1999112363121 2000121366122 2001133375125 2002121381127 2003127393131 2004145405135 2005133416139 2006138425142 2007154436145 2008144449150 2009151 2010

New numbers

Uses and Limitations: can we really forecast the future based on the past? Data must be reliable Trends can change (photographic film?) Recent data is better than old data