9 . 1 F o r e c a s t Ty p e s
forecast: estimate of the future level of some variable (common variables that are forecasted
include demand levels, supply levels, and prices; most organizations use a number of different
forecasting techniques
D e m a n d Fo r e c a s t
- distinguish between overall market demand and firm-level demand
- once firms have accurately forecasted firm-level demand, they can begin to plan their business
activities accordingly
S u p p l y Fo r e c a s t
- just as important as demand forecast (interruption in supply can break the flow of goods / services to
the final customer)
- provides information on the number of current producers / suppliers, projected aggregate supply
levels, technological and political trends,...
Pr i c e Fo r e c a s t
- need to forecast prices for key materials / services
- when commodity prices are expected to increase g forward buying; alternative: futures contract1
9.2 Laws of Forecasting
L a w 1 : Fo r e c a s t s a r e a l m o s t a l w a y s w r o n g ( b u t t h e y a r e s t i l l u s e f u l )
- even under the best conditions, no forecasting approach can predict the exact level of future
demand / price / supply
- too many factors that can ultimately affect these numbers
- businesses should use forecasting methods to get close estimates
L a w 2 : Fo r e c a s t s f o r t h e n e a r t e r m t e n d t o b e m o r e a c c u r a t e
- the factors that affect the forecast variably are not likely to change greatly in the near term (but in the
long run, economical / political changes, technological breakthroughs, demographic changes,... do)
1 legal agreement to buy / sell a commodity at a future date at a price that is fixed at the time of the agreement
- 48 - Jannis Mertens
forecast: estimate of the future level of some variable (common variables that are forecasted
include demand levels, supply levels, and prices; most organizations use a number of different
forecasting techniques
D e m a n d Fo r e c a s t
- distinguish between overall market demand and firm-level demand
- once firms have accurately forecasted firm-level demand, they can begin to plan their business
activities accordingly
S u p p l y Fo r e c a s t
- just as important as demand forecast (interruption in supply can break the flow of goods / services to
the final customer)
- provides information on the number of current producers / suppliers, projected aggregate supply
levels, technological and political trends,...
Pr i c e Fo r e c a s t
- need to forecast prices for key materials / services
- when commodity prices are expected to increase g forward buying; alternative: futures contract1
9.2 Laws of Forecasting
L a w 1 : Fo r e c a s t s a r e a l m o s t a l w a y s w r o n g ( b u t t h e y a r e s t i l l u s e f u l )
- even under the best conditions, no forecasting approach can predict the exact level of future
demand / price / supply
- too many factors that can ultimately affect these numbers
- businesses should use forecasting methods to get close estimates
L a w 2 : Fo r e c a s t s f o r t h e n e a r t e r m t e n d t o b e m o r e a c c u r a t e
- the factors that affect the forecast variably are not likely to change greatly in the near term (but in the
long run, economical / political changes, technological breakthroughs, demographic changes,... do)
1 legal agreement to buy / sell a commodity at a future date at a price that is fixed at the time of the agreement
- 48 - Jannis Mertens
