Process and Project Planning - Essay Example

This report examines the problem of N&F manufacturing by analysing the models that could be used to forecast sales in order to helot eh firm determine potential sales and avoid losses. Forecasting Models and their Significance Sales and the revenue that is realized from sales are very significant to any organization that operates with the aim of maximizing profits. The relevance of sales revenue cannot be ignored since it helps an organization meet its expenses such as payment of its employees, raw materials and meeting fixed costs.

Due to their significance, it is necessary for an organization to forecast the expected sales over a given period of time in order to determine its level of production. Effective sales forecast is necessary for future planning of an organization. For instance, accurate sales forecast could enable an organization decide its future operations especially in terms of diversification. A company is able to choose the line of diversification given correct sales forecasts for the different lines of operations.

Most industries are characterised by free entry and exit whereby new firms could enter the industry while other companies could leave the industry. Sales forecasts are relevant in helping new entrants venture into a given profitable industry. The sales forecasts included in business plans are vital for decision on entry into a given industry. As noted by Morwitz (2001), sales forecasts are a central section of a business plan given that a new company has not historical sales data. The forecasts are used by business financial providers such as banks to provide capital for investors.

Lastly, sales forecasts are important in determining the amount of inventory to be kept by an organization (Morwitz, 2001). Sales Forecasting Model for N&F Manufacturing Forecasting involves various methods that do forecasts mainly from judgmental sources and statistical sources of data. Judgmental forecasting methods have been called qualitative while methods that derive their data from statistical sources have been referred to as either quantitative or time series methods. In spite of the differences among the different forecasting methods, judgmental and statistical methods are integrated together and therefore applied simultaneously while undertaking sales or cost forecasts of an organization.

Although many methods could be used to forecast the sales of Air New Zealand, this study seeks to explain two methods that are direct sales extrapolation and causal approaches to sales forecasting. a) Direct Sales Extrapolation Extrapolation methods utilize historical statistical data on sales of a company to predict the future performance of the firm in terms of sales revenue. The most common of extrapolation technique is the exponential smoothing that assumes that more recent data of sales of an organization is weighted heavily.

The other assumption and principle of this method is that it utilizes long time series data for sales of a firm when developing a forecast model. According to Meade (2001), reliability of the data used in the study is a principle that cannot be ignored. The reliability of data used for forecasting is not debatable if the forecast is to be useful to the organization. Simple accurate, timely and