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IB Syllabus 4.3
IB Syllabus 4.3
The learning outcomes (or assessment objectives) for this section of the IB Business Management syllabus are:
The benefits and limitations of sales forecasting (AO3)
In-Class Activities
In-Class Activities
In groups: How can the school (or another company of your choice) do sales forecasting?
What are benefits and limitations of the school (or your chosen company) doing sales forecasting?
What you should know
By the end of this subtopic, you should be able to:
explain how businesses forecast sales (AO2)
discuss the benefits and limitations of sales forecasting (AO3)
apply simple linear regression in a given context (AO2, AO4)
https://quizlet.com/pa/804917851/43-sales-forecasting-flash-cards/?i=4jrhob&x=1jqt
https://www.gimkit.com/view/67d1269c547098b84bb1a4cf
Correlation
The relationship between two sets of numbers or variables, such as sales revenue at different times of the year.
Cyclical variations
The recurring fluctuations in sales revenues due to the trade cycle (or business cycle).
Extrapolation
A forecasting technique that identifies the trend from using past data and then extending this trend line to predict future sales.
Random variations
Irregular, erratic, or unexpected fluctuations in sales revenues, caused by unexpected and unpredictable factors.
Range
The difference between the highest and the lowest values in a data set.
Sales forecasting
A quantitative technique used to predict a firm’s level of sales revenue over a given time period.
Seasonal variations
Foreseeable periodic fluctuations in sales revenues over a known period of time, such as certain months or times of the year.
Time series analysis
A statistical technique used to identify trends in historical data, such as the figures for a firm’s monthly sales revenues.
Simple Linear Regression Model
statistical techniques used to determine the apparent relationship between two variables, such as marketing expenditure and sales revenue or seasonal impacts on the demand for certain goods and services
Line of best fit
a linear line used to represent the best approximation of a scatter graph of different data points. It is used to study the nature of the relationship between two variables.
Negative correlation exists if
the values of one variable in a data set increases whilst the values of another variable in the data set decreases.
Positive correlation exists if
the values of both variables in a data set move in the same direction.
Scatter diagram
a visual statistical tool used to show the relationship or correlation between two variables, such as marketing expenditure and sales revenues.
4.3 bmt-15---simple-linear-regression-infographic.pdfScatter Diagram with Line of Best Fit
Extrapolation:
4.3 PowerPoints
4.3 PowerPoints
The benefits and limitations of sales forecasting (AO3)
The benefits and limitations of sales forecasting (AO3)
Sales Forecasting
Sales forecasting is a quantitative technique used by businesses to predict the levels of sales that they may expect in future years.
Calculated as quantity of products or total revenue earned
Can be calculated using past performance, marketing research, and analyzing external factors (STEEPLE) that may impact sales (seasonal variations (Christmas, summer, winter), Economic Cycles, changing consumer preferences, etc)
If sales are expected to grow, then the business can take steps to ensure this extra demand is met.
inventory levels can be expanded
additional staff can be recruited if necessary
production capacity can be increased.
If companies feel they will not be able to meet their expected demand, then prices can be increased so that profits can be maximised.
If a decline in sales is forecast, then a company may choose to reduce production.
Staff may be made redundant
spare land and capital may be reallocated or sold
However, a company may want to react to lower sales forecasts by increasing marketing budgets, in an attempt to fight off the predicted decline.
✅ Benefits of Sales Forecasting
Operations Management and Human Resources
Effective future planning. If correct, forecasts can help companies to plan for the future. New equipment, staff and inventories can be secured to meet increased demand and opportunities.
Improves inventory control
Optimizes production schedules
Supports workforce planning
Marketing
Increase budgets to increase sales. If a drop in sales is forecast, companies can react to this with increased marketing budgets, in an effort to increase sales.
Better ability to decide. If forecasts are extremely negative, a company may decide to withdraw a product from the market before it becomes a drain on resources.
Strategic Planning:
Helps identify opportunities and threats
Aids in preparing for cyclical and seasonal variations
Financial Planning:
Assists in securing external financing
Informs profit expectations for investors
Learning Tool:
Enables businesses to learn from past performance and improve future predictions
❌ Limitations of Sales Forecasting
Not enough data. New companies do not have previous data upon which to draw.
Changing markets. Rapidly changing markets can lead forecasts to be invalid. Past ≠ Future
Cannot always account for unexpected events (e.g., economic crises, natural disasters, pandemics)
Time Sensitivity:
- Accuracy decreases for longer time periods
Flexibility. Forecasts should only be seen as a guide. Managers need to remain flexible rather than following plans blindly.
Use of different methods to predict. Sales forecasting is just one method of predicting future sales. Companies should also be mindful of market research results and product life cycle analysis (Qualitative Factors).
Data Collection Challenges:
- Can be time-consuming and expensive to gather reliable data
https://drive.google.com/file/d/1XAEauGYbKS6JRn-cH7kz9fFPs8Cp0pNp/view?usp=sharing
https://drive.google.com/file/d/1J_0Q1evzRqEz2AX1YiOFs4gf4Ku-OB6y/view?usp=sharing
4.3 Exam Practice Questions - Kognity & InThinking
https://docs.google.com/document/d/1jK-jvCadePpX6kkG37RTuPMlumZ1x8K3TuaVI-juA_k/edit?usp=sharing
4.3 Exam Practice Questions ANSWERS - Kognity & InThinking
https://docs.google.com/document/d/1Ne-6il0_y1VcLCIxFCRqJ6CN1oxV0qFDRyaMkUb60A0/edit
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