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Problem

What limitations must be understood before applying and interpreting the demand forecasting results generated by causal methods?

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Quantitative techniques of demand forecasting comprises systematic are objective forecasting. It includes two methods which are;

1. Time-series.

2. Regression.

This regression method is also called as “casual method”. But before applying and interpreting the demand forecasting results generated by casual methods, analysts must understand some limitations of this typical mathematical approach. These limitations of casual method are discussed below in brief:

Limitations of casual method:

• Casual methods use factors which affected past sales and convert them into a mathematical theory. It may pose serious blunders of the conversion method is inaccurate.

• The conversion method into mathematical model cannot be reliable for long range forecasts.

• The economic variables used by casual methods are taken from survey institutes. They may not be accurate.

• The independent variables must be associated to sales demand in a logical way. These independent variables could not stimulate sales demand individually.

• The historical data which is required for eliminating future sales demands may not be found that easy always.