How to Create a Better Forecast
While forecasting is never completely accurate, your objective is to make your forecast as accurate as you can. This series of articles is about what I have learned over the years about creating a better forecast.
Management might ask you to make a forecast of the following:
- How much will you sell next year?
- How much demand will there be for your product or service?
- How much will it cost to produce your product or offer the service?
- How much inventory do you need and when will you need them?
How do you go about making a forecast?
Tip#1 Identify your Demand Profile
The first step is to analyze the demand for your product. By demand I am referring to the customers’ interest in your product and it may be affected by economic conditions, consumer confidence, and interest in your type of product.
Be careful not to rely solely on the sales from the previous periods. Sales is the result of the effort you put into getting your product into the hands of your customer and may not accurately reflect sales lost to your competitors, sales lost to delays, sales lost to out of stock situations and other similar factors. The lost sales factors could be a significant part of the true demand for your product.
One you have the demand date, determine the type of demand you have for your product. Which one of the following do you have?
- Level Demand
- Demand with Trend
- Seasonal Demand
- Random Demand
These might look like the following:
Preparing a forecast can be quite a challenge. Happily, the advent of the personal computer and spreadsheet software like MS Excel have made forecasting much easier to accomplish.
There are still a few principles that you need to learn and understand. But, MS Excel can do a lot of the heavy lifting giving you more time to concentrate on the principles and assumptions behind your forecast thus making your work a lot easier.
Over the next few weeks, I will post more tips from our Basic Forecasting Seminar. Watch out for them.
Learn Basic Forecasting at RMP Consultancy
At RMP Consultancy, we have developed a very effective course in Basic Forecasting that we have taught to hundreds of participants.
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17 Feb 2020, Monday, Focused Improvement: The 7 Quality Control Tools,
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15 Apr 2020, Wednesday, Focused Improvement: The 7 Quality Control Tools,
14 May 2020, Thursday, Focused Improvement: The 7 Quality Control Tools,
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