Question

Identify the tools and techniques available to managers in the area of forecasting and planning. Discuss how you will use these tools to forecast sales and prepare a financial plan for your company?

Answer 1

Three General varieties Once the manager and also the visionary have developed their drawback, the visionary are going to be in an exceedingly position to settle on a way. There ar 3 basic types—qualitative techniques, statistic analysis and projection, and causative models. the primary uses qualitative information (expert opinion, for example) and data regarding special events of the type already mentioned, and will or might not take the past into thought. The second, on the opposite hand, focuses entirely on patterns and pattern changes, and so depends entirely on historical information. The third uses extremely refined and specific info regarding relationships between system components, and is powerful enough to require special events formally under consideration. like statistic analysis and projection techniques, the past is very important to causative models. These variations imply (quite correctly) that a similar variety of foretelling technique isn't applicable to forecast sales, say, in any respect stages of the life cycle of a product—for example, a way that depends on historical information wouldn't be helpful in foretelling the long run of a very new product that has no history. The major a part of the balance of this text are going to be involved with the matter of textile the technique to the life-cycle stages. we have a tendency to hope to provide the chief insight into the potential of foretelling by showing however this drawback is to be approached. however before we have a tendency to discuss the life cycle, we'd like to sketch the overall functions of the 3 basic varieties of techniques in an exceedingly bit additional detail. Qualitative techniques Primarily, these ar used once information ar scarce—for example, once a product is initial introduced into a market. They use human judgment and rating schemes to show qualitative info into quantitative estimates. The objective here is to assemble in an exceedingly logical, unbiased, and systematic means all info and judgments that relate to the factors being calculable. Such techniques ar often employed in new-technology areas, wherever development of a product plan might need many “inventions,” so R&D demands ar troublesome to estimate, and wherever market acceptance and penetration rates ar extremely unsure. The multi-page chart “Basic foretelling Techniques” presents many samples of this sort (see the primary section), as well as research and also the now-familiar metropolis technique.1 during this chart we've got tried to produce a body of basic info regarding the most forms of foretelling techniques. a number of the techniques listed aren't essentially one methodology or model, however an entire family. so our statements might not accurately describe all the variations of a way and will somewhat be taken as descriptive of the essential idea of every.

A basis for sales forecasts
Sales forecasts alter you to manage your business a lot of effectively. Before you start, there ar many queries which will facilitate clarify your position:

How many new customers does one gain every year?
How many customers does one lose every year?
What is the common level of sales you create to every customer?
Are there explicit months wherever you acquire or lose a lot of customers than usual?
Existing businesses

The place to begin for your sales forecast is last year's sales.

Before you think about a brand new product launch, or associate economic trend, check out the extent of sales for every client last year. does one recognize of any customers World Health Organization ar getting to purchase a lot of - or less - from you next year?

In the case of consumers World Health Organization account for a big price of sales, you'll need to raise them if they commit to amendment their purchase level within the predictable future.

New businesses

New businesses got to create assumptions supported marketing research and sensible judgement.

Every business can even add within the new customers that it expects to draw in while not really knowing World Health Organization they're, or what they'll purchase. merely enter "new customer" on your forecast.

Depending on your sort of business, you'll need to specify the amount of sales within the forecast - for instance, how many 3.78-litre cans of paint you sell - still because the price of sales. By knowing the amount, you'll be able to set up the required resources in areas like production, storage and transport.

Your sales assumptions
Every year is completely different therefore you would like to list any dynamic circumstances that might considerably have an effect on your sales. These factors - called the sales forecast assumptions - type the premise of your forecast.

Wherever potential, place a figure against the amendment - as shown within the examples below. you'll be able to then get a pity the impact it'll wear your business. Also, provide the reasoning behind every figure, in order that others will investigate whether or not it's realistic.

Here ar some typical samples of assumptions:

The market

The market you sell into can grow by two per cent.
Your market share can shrink by two per cent, because of the success of a contender.
Your resources

You will double your sales division from 3 individuals to 6 individuals, halfway through the year.
You will pay fifty per cent less on advertising, which is able to cut back the amount of enquiries from potential customers.
Overcoming barriers to sale

You are moving to a far better location, which is able to result in thirty per cent a lot of customers shopping for next year.
You are raising costs by ten per cent, which is able to cut back the amount of product oversubscribed by five per cent however end in a four.5 per cent increase in overall revenue.
Your product

You are launching a spread of latest product. Sales are going to be tiny this year and prices can outweigh profits, however in future years, you'll reap the advantages.
You have product that ar new established which have the potential to extend sales apace.
You have established product that get pleasure from steady sales however have very little growth potential.
You have product that face declining sales, maybe owing to a competitor's superior product.
For new businesses, the assumptions got to be supported marketing research and sensible judgement.

Developing your forecast
Start by writing down your sales assumptions. See the page during this orient your sales assumptions.

You can then produce your sales forecast. This becomes simple once you've got found how to interrupt the forecast down into individual things.

Can you break down your sales by product, market, or geographic region?
Are individual customers vital enough to your business to warrant their own individual sales forecast?
Can you estimate the conversion rate - the proportion likelihood of the sale happening - for every item on your sales forecast?
For example, you would possibly predict that a client can purchase $1,000 value of product. If you estimate that there is a seventy per cent likelihood of this happening, the forecast sales for this client ar $700, i.e. seventy per cent of $1,000.

Selling a lot of of your product to associate existing client is much easier than creating a primary sale to a brand new client. therefore the conversion rates for existing customers ar abundant over those for brand spanking new customers.

You may need to incorporate details of that product every client is probably going to shop for. Then you'll be able to spot potential issues. One product may sell out, whereas another won't move in the slightest degree.

By predicting actual sales, you are prognostication what you're thinking that are going to be oversubscribed. this can be usually way more correct than prognostication from a target figure so making an attempt to figure out the way to bring home the bacon it.

The completed sales forecast is not just accustomed set up and monitor your sales efforts. it is also an important a part of the income.

There is a good vary of sales prognostication computer code out there that may create the total method abundant easier and a lot of correct. This computer code generates forecasts supported historical information. If you're considering shopping for computer code, get recommendation from associate IT skilled, your trade association, your business advisors and businesses of the same size and in similar markets.

Avoiding prognostication pitfalls
Five common prognostication pitfalls are:

Wishful thinking

It's only too simple to be over-optimistic. it is a sensible plan to appear back at the previous year's forecast to ascertain if your figures were realistic. New businesses ought to avoid the error of figuring out the extent of sales they have for the business to be viable, then swing this figure in because the forecast.

You also got to take into account if it's physically potential to attain the sales levels you are prognostication. For example:

one taxi will solely create an explicit range of airfield visits daily
a machine will solely manufacture a given range of parts on every shift
a sales team will solely visit an explicit range of consumers hebdomadally
Ignoring your own assumptions

Make sure your sales assumptions ar coupled to the careful sales forecast, otherwise you'll be able to find yourself with utterly contradictory info. as an example, if you assume a declining market and declining market share, it's illogical to then forecast raised sales. For a lot of info, see the page during this orient your sales assumptions.

Moving goalposts

Make sure the forecast is finalised and united inside a collection timescale. If you are defrayal tons of your time purification the forecast, it will distract you from specializing in your targets. Avoid creating excessive changes to the forecast, although you discover it's too optimistic or disheartened.

No consultation

Your sales individuals most likely have the simplest data of your customers' shopping for intentions, therefore:

ask for their opinions
give them time to raise their customers regarding this
get the sales team's agreement to any targets which will be set
No feedback

Having designed your sales forecast, you would like somebody to challenge it. Get associate fully fledged person - your bourgeois or a senior sales person - to review the total document.

Creating a sales set up
The queries you ought to answer in your sales set up are:

What ar you getting to focus on?
What ar you getting to change?
In sensible terms, what steps ar involved?
What territories and targets ar you getting to provide every employee or team?
The sales set up can begin with some strategic objectives. Here ar some examples:

break into the municipal market by adapting your product for this market
open a store in a vicinity that you simply believe has the potential for generating voluminous sales
boost the common sale per client
You can then make a case for the stepping stones which will permit you to attain these objectives. Use objectives that ar sensible - Specific, Measurable, Achievable, Realistic, Time-bound.

Using the instance of breaking into the municipal market, the stepping stones may well be to:

hire a sales person with expertise of the municipal market on a wage of $48,000 by the start of February
fully train the sales person by middle April
ensure that any changes the merchandise development team has united to form ar able to pilot by the start of April
As well as coming up with for brand spanking new product and new markets, make a case for however you are going to enhance sales and profit margins for your existing product and markets. it's typically useful to spot however you'll take away barriers to sales:

Can you increase the activity levels of the sales team - a lot of phonephone calls per day, or a lot of client visits per week?
Can you increase the conversion rate of calls into sales - through higher sales coaching, higher sales support materials or improved sales incentives?