in demand forecasting important method used in trend projection

The Trend Projection Method is the most classical method of business forecasting, which is concerned with the movement of variables through time. This method is based on the assumption that the factors liable for the past trends in the variable to be projected shall continue to play their role in the future in the same manner. In predicting demand for a product the Trend Projection Method is applied to a long time series data.

Advantage-

This method is most popular as it is simple and in-extensive and because of time series data often exhibits a persistent growth trend.

Assumptions-

This basic assumptions of this method is that the past rate of the change of the variable under study will be continuing in future. This assumption gives good safe results till the time series exhibits a persistent tendency to move in the same direction. When the turning points comes, the trend projection break down.

There are four factors responsible for the characterization of time series.

1. Fluctuations and turning points
2. Trend seasonal variation
3. Cyclical fluctuations
4. Irregular or random forces

This time series is expressed by the following equation

O = TSCI

Where O = observed data

T - a secular tend

S- a seasonal factor

C - cyclical element

I - an irregular movement

PS- there are 7 methods of demand forecasting

1. Survey of Buyer's Intentions ( short term method of knowing and estimating customer's demand.)
2. Collective Opinion or sales force competition method. ( Advantages- it is simple , common, sense method involving no mathematical calculations. It is based on the first - hand knowledge of salesman and the persons directly connected with sales. This method is particularly useful for sales of new product. Is has the salesman's judgment.      Disadvantages- it is subjective approach. This method can be used only for short term forecasting.
3. Trend projection - most popular
4. Executive Judgment Method- Advantages -- no need of elaborate statistics. Only feasible method to follow.     Disadvantages- no factual basis of such forecast. No accuracy. Responsibility for the accuracy of data cannot be fixed on any one.
5. Economic Indicators-- Limitations-- it is difficult to find out an appropriate economic indicator. For few products it is not good, as no past data are available.
6. Controlled Experiment-- under this method , an effort is made to ascertain separately certain determinants of demand which can be maintained. Disadvantages- this method is expensive and time consuming. It is risky because it may lead to unfavorable reactions on dealers, consumers and competitors.
7. Expert's Opinion-- Advantages-  forecasts can be done easily and speedily. It is based on expert's views and opinions hence estimates are nearly accurate.    Disadvantages - estimates for market segment cannot be possible. The reliability of forecasting is always subjective because forecasting is based on facts.