MANRECO

Demand 2. Cost Control

➢ accountants can identify periods of

Forecasting
high demand and plan production
schedules more efficiently.
➢ helps in optimizing resource
utilization and reducing overtime
costs
Demand Forecasting
● a systematic process that involves
anticipating the demand for the product 3. Inventory Management
and services of an organization under a ➢ accountants can work with inventory
set of uncontrollable and competitive managers to establish optimal stock
forces levels based on demand forecasts
➢ prevents overstocking or
● It is a method of using historical sales understocking, reducing holding
data to evaluate future customer demand costs and the risk of obsolete
for a specific product and examine the inventory
sales of a specific product scientifically
over a period of time (as the basis for
ordering and inventory decisions) 4. Pricing Strategy
➢ demand forecasts can inform pricing
decisions.
Importance of Demand ➢ if demand is expected to be high for a
Forecasting limited-time offer, the accountant can
recommend a premium price.
- a critical tool that enables Conversely, if demand is expected to
accountants to make data-driven be low for a particular product, the
financial decisions, optimize resource accountant can suggest discounting
allocation, and manage financial risks to clear excess inventory
effectively.
- through incorporating demand
forecasts into their financial planning 5. Cash Flow Management
and analysis, accountants contribute ➢ accurate demand forecasts help
significantly to the overall financial accountants project cash flows more
health and success of their precisely
organizations ➢ can anticipate when revenues will
increase, enabling them to plan for
necessary working capital, debt
1. Budgeting and Financial Planning repayment, or investment in growth
➢ accountants can use demand opportunities.
forecasts to create accurate budgets
for the upcoming fiscal year.
6. Risk Mitigation
- accountants can use demand
forecasts to assess and manage
Steps in Demand Forecasting
financial risks 1. Identification of Business Objectives
- if demand for a critical component is
2. Determining the nature of Goods
expected to be uncertain due to
supply chain disruptions, they can ▪ different goods have their own
budget for potential cost increases or special demands
explore alternative sourcing options 3. Determining the time period
▪ Based on the set target
7. Tax Planning ▪ Short-term (determinants remain
- accountants can use forecasts to unchanged
estimate future taxable income,
allowing them to plan for tax ▪ Long-term (determinants change)
liabilities and take advantage of tax 4. Selecting a method to use for demand
incentives or deductions forecasting
▪ Choose a method that best suits the
8. Strategic Decision-Making requirement
- when a company plans to expand its 5. Collection and adjustment of data
product line or enter new markets,
▪ Primary or secondary
demand forecasting provides
valuable insights ▪ Both
- accountants can evaluate the 6. Estimation and Interpretation of results
financial feasibility of such strategic
moves by analyzing the expected ▪ Finalize the demand forecasting
demand and associated costs method
▪ Evaluate the demand for the
pre-defined period
9. Performance Evaluation
- accountants can compare actual sales ▪ Estimates appear as equations
and financial performance to ▪ Result is interpreted and
forecasted figures. represented in an easy and accessible
- helps identify discrepancies and form
enables proactive adjustments to
strategies and budgets. For instance,
if actual sales fall short of forecasts,
accountants can investigate the
causes and recommend corrective
actions.
 b. Barometric Technique
● used by recording events in the
present to forecast the future using
statistical analysis, like leading series,
Demand Forecasting concurrent series, or lagging series
Methods c. Econometric Forecasting Technique

1. Qualitative Method ● uses autoregressive integrated

moving average, and complex
a. The Delphi Technique -
mathematical equations to create
● Each expert generate a forecast of relationships between demand and
their elected specific segment, and factors affecting demand.
reads our forecast ● An equation is developed and
● Every expert influences other expert. fine-tuned to assure a reliable
A consequent forecast is again historical representation
produced by all experts.
● Process is repeated until all experts
achieve an agreed scenario.
b. Sales Force Opinion
● predicts the estimated future sales in
their region
● Estimates are aggregated to calculate
the estimated future sales; managers
sets up the final version of the
demand forecast
Step by Step process in Sales
c. Market Research
Projections
● Customer specific survey are used Step 1: Gather Historical Sales data
Step 2: Clean and Analyze the data

2. Quantitative Method Step 3: Define your projection period

a. Trend Projection Technique Step 4: Choose a projection method

● used with large sales data history Step 5: Calculate the growth rate
over 18 to 24 months. Step 6: Apply the growth rate to Projections
● historical data sets up a time series
Step 7: Account for special factors
which illustrates past data and
projected demand by graphical Step 8: Review and Refine
method or least-square method
 5. Cash Flow Management

Tools in Demand Tool: Cash Flow Forecast Template

1. Budget and Financial Planning - create a cash flow projection

template that includes expected cash
Tool: Historical Sales Growth inflows (sales and receivables) and
Calculator outflows (expenses, loan
- calculate the average historical sales repayments). Update it regularly to
growth rate over the past few years monitor cash flow.
and apply it to the current year's
sales to forecast future revenue.
Adjust for any known market trends 6. Risk Mitigation
or events Tool: Scenario Analysis Matrix
- develop a matrix that outlines
2. Cost Control potential risks (e.g., supply chain
disruptions, economic downturns)
Tool: Seasonal Cost Adjustment and their impact on demand. Assign
Spreadsheet probabilities and consequences to
- create a spreadsheet that adjusts each scenario for risk assessment
production and labor costs based on
historical demand patterns
7. Tax Planning
Tool: Sales-Based Tax Estimator
3. Inventory Management
- estimate tax liabilities based on
Tool: ABC Analysis Worksheet forecasted sales and applicable tax
- categorize inventory items into A, B, rates. Consider tax incentives and
and C categories based on their value deductions to calculate the final tax
or turnover rate. Set different burden
reorder points and restocking
frequencies for each category
8. Strategic Decision-Making
Tool: Market Trend Report
4. Pricing Strategy
- compile market research and trend
Tool: Price Elasticity Calculator analysis into a report. Highlight key
- historical sales data and pricing findings, growth opportunities, and
information to calculate price potential risks to support strategic
elasticity for different products. This decision-making.
helps you determine how price
changes will affect demand