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OPTIMAL PLANNING: THE USE OF SALES FORECASTS
Author(s) -
Childress Robert L.
Publication year - 1973
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1973.tb00981.x
Subject(s) - econometrics , conjunction (astronomy) , value (mathematics) , distribution (mathematics) , regression analysis , sales management , sales forecasting , probability distribution , computer science , operations research , economics , statistics , marketing , mathematics , business , mathematical analysis , physics , astronomy
Budgets are established and decisions in a firm are made on the basis of the sales forecast. In the majority of firms this forecast is a single value estimate of sales. The decisions made on the basis of the single value estimate frequently fall short of optimal strategies because of costs that occur when actual sales differ from forecast sales. These costs, measured in terms of opportunity losses, can be minimized when considered in conjunction with a probability distribution of sales. Three methods for determining the probability distribution of sales are considered in this paper. These are regression analysis Schlaifer's approach for establishing a subjective distribution, and Bayesian regression. The use of the distribution in conjunction with linear and quadratic loss functions is illustrated.