Sales Forecasting and Budgeting: A Comprehensive Report

This report provides a comprehensive analysis of sales forecasting and budgeting, covering various aspects crucial for organizational planning and financial management. It begins by evaluating the impact of sales forecasting on organizational planning, emphasizing its role in strategic decision-making and operational efficiency. The report then delves into the factors affecting sales trends, both internal (organizational structure, skills) and external (macro and micro-environmental factors), and explores the application of frameworks like PESTLE and Porter's Five Forces. A significant portion is dedicated to understanding both quantitative (statistical methods) and qualitative (expert judgment) techniques of sales forecasting, including their strengths, weaknesses, and the role of computer software. The report also highlights the importance of monitoring actual sales figures against forecasts, discussing methods like control charts and error analysis. Finally, it examines various budgeting methods, such as zero-based budgeting, and their suitability for supporting sales forecasts, along with fund allocation strategies for sales teams. The report provides valuable insights into the practical application of sales forecasting and budgeting principles.

Running Head: Sales Forecasting And Budgeting
SALES FORECASTING AND BUDGETING

Sales Forecasting And Budgeting 2
Table of Contents
LO1: Understand the impact of sales forecasting on organisational planning................................3
LO2: Understanding the factors affecting sales trends....................................................................4
LO3: Understanding on the quantitative and qualitative techniques of sales forecasting...............5
LO4: Understanding the significance of monitoring the actual sales figure against the forecast
sales..................................................................................................................................................6
LO5: Understanding budgeting methods.........................................................................................8
Reference List................................................................................................................................10

Sales Forecasting And Budgeting 3
LO1: Understand the impact of sales forecasting on organisational planning
1.1 Evaluation of the impact of sales forecasting on organisational planning
Sales forecasting stands as a vital task in a company’s organisational planning related to
financial planning. It is a highly useful self-assessment tool which uses past as well as
present statistics of sales to predict a company’s future performance in relation to sales in an
intelligent manner. With an appropriate sales forecast, a company becomes able to plan for its
operational future. It is a key element to be considered for every company while conducting its
regular business. The realism is a good forecasting of sales help a company to improve and
develop its strategic planning by increasing its knowledge about the marketplace. Sales forecast
allows a company to manage all the aspects of its business virtually. It helps to measure market
share, sales value and sale volume to formulate a highly effective sales budget. Though it is time-
consuming and complex, but the benefits it provides to a company is unmatched
(yourbusiness.azcentral.com, 2019).
1.2 Evaluation of the applicability as well as the usefulness of short, medium and long-term
sales forecasts
Sales forecasts are done for shirt, medium, and long-term and it stands very useful for
different parts of a business organisation. Short-term sales forecasts are generally done for some
tactical reasons whereas medium-term sales forecasts are made for making minor strategic
decisions like budgeting at the initial level. Long-term sales forecasts are made for making major
decisions that are strategic in nature. Short-term and long-term forecasts are applied for
production planning and for determining customers’ priorities. It helps a company to reduce lead
time, supply risk, purchase schedule. Medium-term forecast is used to meet accounting and
finance related needs those are related to budgeting whereas long-term forecasts assist to
formulate cash flow planning, long-term plans for profit generation, and planning for
infrastructure. Overall, all the periodic sales forecasts are useful for a company and its different
departments as these are applied for implementing operational plans in a timely manner (Ingram
et al. 2015).

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1.3 Evaluation of the influence of sales forecasting on the sales managers along with their
sales targets, objectives, remuneration systems, and budgeting
Sales forecasts assist managers to evaluate raw data and help them to share their
expectations in relation to sales quantity to the salespersons of the company. Sales forecasts use
to underpin the objectives of sales managers by providing them a framework by using which
performance could be measured and the functional goals. It also provided motivation and
direction, thereby strengthens the manager's leadership. It impact managers' decisions on setting
up a sales target, and budgeting. The remuneration system is also influenced by such forecasts
individual performance work towards meeting the sales target set by the managers.
LO2: Understanding the factors affecting sales trends
2.1 Evaluation of the internal factors that might affect a company’s sales trends
According to, the Seven S framework of McKinsey, the internal factors that are often
become responsible for affecting sales trends of a company include organisational skills, style,
structure, staff, systems, strategy, and shared values. These factors affect sales trend if these
factors influenced by a company are deliberate, consequential, or accidental actions (Singh,
2013).
2.2 Evaluation of the external factors often affects sales trends
The external factors that might affect a company’s sales trend are classified into macro
environmental factors and micro environmental factors. The micro environmental factors found
affecting a company’s sales trends are customers, stakeholders, and competitors. On the other
side, macro environmental factors are comprised of competition, economic, social, technological,
political, legal, environmental, cultural, and ethical factors (Gupta, 2013). For analysing macro
environmental factors that affect sales trend the most significant theoretical frameworks are

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PESTLE, PEST, and SCEPTIC. A framework like STEEPLE, consist of some of the vital macro
environmental factors, is very reliable for monitoring the changes of these factors and within the
subsequent market trends that jointly affect sales trends (Dragnić, 2014). In terms of analysing
competitive forces or factors, some vital external business environmental factors are the Porter's
five forces. It is used which help to gauge external forces like bargaining power of suppliers,
bargaining power of buyers, threat of new entrants, threat of substitute products, and industry
rivalry (Tanwar, 2013).
LO3: Understanding on the quantitative and qualitative techniques of sales
forecasting
3.1 Evaluation of the qualitative techniques of forecasting sales
The key qualitative techniques used in all forecasting of sales and other business related
forecasting by applying qualitative elements such as experience, judgement, and the capability to
cope up with the functional and situational complexity. These techniques are applied where the
soft skills stand dominant. While applying qualitative techniques, the manager of a company
uses to balance these techniques with quantitative techniques. Qualitative techniques specifically
applied by individual experts, a panel of experts, composite sales-force and others. Some of the
commonly used qualitative techniques of sales forecasts are Delphi method, Sales Force
Composite, Bayesian analysis and Decision trees (Pole, West & Harrison, 2018). Qualitative
techniques allow the decision-makers to utilise ‘rich’ data sources like expert judgment,
experience, and intuition as well as make them able to predict the changing patterns of sales. In
this respect, qualitative techniques are good to use for sales forecasts but as these are based on
one's own judgment it often found inaccurate and encourages inconsistency. Moreover, these are
expensive and time-consuming which make it a weak technique for sales forecasts (Sepúlveda-
Rojas et al. 2015).
3.2 Evaluation of the quantitative techniques of forecasting sales

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Quantitative sales forecasting techniques use to rely less on individual judgement and
more on numeric figures and maths which make is reliable and consistent to a great extent.
While applying these techniques, rational mindset is adopted. Some of the quantitative
techniques of sales forecasts are quite simple but some others are very complex. Quantitative
techniques are methodical, scientific and the variables used while applying these techniques are
easy to change for future forecast. Outputs are easily integrated into the control and planning
systems of a company and the results were drawn by applying quantitative techniques of sales
forecasts are simple to present in the dashboard. On the contrary, it misses the turning points,
requires a huge number of real data those are useful in nature and disguise judgements of the
decision-makers which limit these techniques in providing optimally reliable and highly close to
accurate sales forecasts (Thomassey, 2014).
3.3 Evaluation of the use of computer software for sales forecasting
In the process of sales forecasting, computer software uses to play a very significant role
and it accelerates the process by assisting the people engaged in sales forecasting tasks. The use
of computer software in sales forecasting helps companies to reduce costs required for
processing information and increases the speed and accuracy of information processing. It
provides a number of options to the forecaster to analysis and assists him/her to prepare a highly
efficient sales forecast report. Furthermore, it improves understandability of data by representing
them in graphical form, develops competitive advantages associated with forecasting, along with
new territories and market niches. Computer software accelerates the process of quantitative
forecasts and provides qualitative forecasting to the management. Thus, the use of a computer
system or software is an integral element in sales forecasting to make such forecast close to
accurate, reliable, and fast.

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LO4: Understanding the significance of monitoring the actual sales figure
against the forecast sales
4.1 Evaluation of the importance attached to the monitoring and measuring actual sales
volume against the forecast sales volume
Sales activities are the main activities of a company, as these are the elements that bring
money into the company. These activities use to offset costs, underpin planning and ensures
sustainability of a company organisation. Due to this, a company must have a proper mechanism
to monitor and measure its sales to gauge its current financial performance and predict future
financial performance. Monitoring and measuring the actual sales volume refers to the two
fundamental steps in forecasting sales volume for the future years or some specific time period.
By monitoring sales volume the forecaster becomes able to gauge the sales trend which assists
him/her to forecast the future trend of sales. Actual sales volume is required to be compared
against the forecasted sales volume to identify the variance and set proper strategy to mitigate the
issue that led the company to face less sales (if forecasted sales stand lower than actual). Proper
monitor and measurement of actual sales volume against forecasted sales volume assist a
company to make strategic decisions and to prepare a budget for the next period. It also helps to
point out the loopholes of sales forecasts and the reasons for which sales forecast made higher (if
the difference between actual and forecasted sales stands huge) than the actual.
4.2 Evaluation of the methods used by companies to measure and monitor actual sales
against forecasted sales as well as for revising the sales forecasts
The methods used for monitoring and measuring actual sales volume against the
forecasted one are control charts, Z charts, and error analysis. The use of control charts is good
as it is an idea of quality management. Z chart is better than control chart as it shows weekly
sales, non-cumulative and cumulative in nature along with the moving average for annual sales
of the forecasting period of one year. This chart maps the actual sales volume over the projected
sales volume in a single diagram that helps to track performance. Error analysis is not as better as
Z chart and control chart as mere identification of errors are not useful for measuring actual sales
volume against forecasted one. Though, it is useful for revising the forecasted sales figure in the

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next financial period as it helps management to point out the errors in the sales forecast and led
them to make proper strategies to resolve such errors.
LO5: Understanding budgeting methods
5.1 Evaluation of the budgeting methods and selection of a most effective budgeting method
that could support forecasts of sales
The budgeting methods used by companies include incremental budgeting, activity-based
budgeting, zero-based budgeting, performance-based budgeting, and periodic budgeting or
rolling budgeting. All these budgets are effective to be used at different companies that are
engaged in different business practices (Réka, Ştefan & Daniel, 2014). Zero-based budgeting
(ZBB) is the highly capable of supporting sales forecast of a company. Zero-based budgeting is
one of the most useful budgeting methods because it helps a company to allocate resources
efficiently, as ZBB is based on the benefits and needs. This method uses to drive managers
towards finding out the cost-effective ways by applying which sales activities could be
improved. Moreover, it changes in accordance with the changes in the organisation, emphasis on
decision making, and detects then inflated budgets (Pyhrr, 2012). The benefits of ZBB makes in
highly capable of supporting the sales forecast.
5.2 Evaluation of the methods of fund allocation in the sales budget to sales teams
The fund allocated to the sales team through the sales budget is done by reviewing the
percentage of sales last year, parity with the competitors, marginal method, and affordable
method. The percentage of sales in the last year is a good method for apply for allocating fund to
the sales team through sales budget as it helps the budget preparer to get some real life past data
by considering which he/she can formulate coming year's sales budget. Affordable method,
parity with competitors and other method are not as effective as they are not able to help the
budget preparer to use real numeric figures.

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5.3 Evaluation of the methods of identifying the causes of variances and the possible actions
for addressing the variances
Expenditure of a company mostly depends on its sales related activities and in
accordance with the changes in sales volume from the forecasted to actual, expenditure also
changes which create variance between the actual and forecasted expenditure. Expenditure
includes staff cost, material costs, and overhead cost, all of which are the parts of sales. These
costs elements and their changes create variance between actual and forecasted expenditure
which is calculated by applying the variance analysis method. Variance method indicates the
performance of a company in relation to reduce expenses and this makes this method useful. For
addressing variance, staff cost variance, material costs variance, overhead cost variance, and
marginal variance is applied. All of these methods are highly effective for addressing the degree
of variance and assisting the management to take possible actions for reducing such variance.

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Reference List
Azcentral.com. (2019). Top 10 Reasons Why Sales Forecasting Is Important. Retrieved on 15th
January 2019 from https://yourbusiness.azcentral.com/top-10-reasons-sales-forecasting-
important-24818.html
Dragnić, D. (2014). Impact of internal and external factors on the performance of fast-growing
small and medium businesses. Management-Journal of Contemporary Management
Issues, 19(1), 119-159.
Gupta, A. (2013). Environment & PEST analysis: an approach to the external business
environment. International Journal of Modern Social Sciences, 2(1), 34-43.
Ingram, T. N., LaForge, R. W., Williams, M. R., & Schwepker Jr, C. H. (2015). Sales
management: Analysis and decision making. Routledge.
Pole, A., West, M., & Harrison, J. (2018). Applied Bayesian forecasting and time series analysis.
Chapman and Hall/CRC.
Pyhrr, P. A. (2012). Zero‐Based Budgeting. Handbook of Budgeting, 677-696.
Réka, C. I., Ştefan, P., & Daniel, C. V. (2014). Traditional Budgeting Versus Beyond Budgeting:
A Literature Review. Annals of the University of Oradea, Economic Science
Series, 23(1).
Sepúlveda-Rojas, J. P., Rojas, F., Valdés-González, H., & San Martín, M. (2015). Forecasting
models selection mechanism for supply chain demand estimation. Procedia Computer
Science, 55, 1060-1068.
Singh, A. (2013). A study of role of McKinsey's 7S framework in achieving organizational
excellence. Organization Development Journal, 31(3), 39.
Tanwar, R. (2013). Porter’s generic competitive strategies. Journal of business and
management, 15(1), 11-17.

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Thomassey, S. (2014). Sales forecasting in apparel and fashion industry: A review. In Intelligent
fashion forecasting systems: Models and applications (pp. 9-27). Springer, Berlin,
Heidelberg.