Scribd
Upload
134 views

Case Problem 2 Forecasting Lost Sales

This document provides seasonal indexes and forecasts of sales for both a department store, Carlson, and county-wide department stores for a 48 month period preceding a hurricane. It then compares the forecasts to actual sales figures after the hurricane to determine "lift factors" and estimate lost sales for Carlson from business interruption. Specifically: - It provides seasonal indexes and forecasts of monthly sales for Carlson and county-wide department stores for 12 months assuming no hurricane. - It shows actual sales figures for county-wide stores were higher than forecasts for each of the 4 months following the hurricane, with a total excess of 28.3%. - By multiplying Carlson's monthly forecasts by the respective lift factors, it

Uploaded by

Something Chic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
134 views

Case Problem 2 Forecasting Lost Sales

This document provides seasonal indexes and forecasts of sales for both a department store, Carlson, and county-wide department stores for a 48 month period preceding a hurricane. It then compares the forecasts to actual sales figures after the hurricane to determine "lift factors" and estimate lost sales for Carlson from business interruption. Specifically: - It provides seasonal indexes and forecasts of monthly sales for Carlson and county-wide department stores for 12 months assuming no hurricane. - It shows actual sales figures for county-wide stores were higher than forecasts for each of the 4 months following the hurricane, with a total excess of 28.3%. - By multiplying Carlson's monthly forecasts by the respective lift factors, it

Uploaded by

Something Chic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Case Problem 2: Forecasting Lost Sales

1. The data used for the forecast is the Carlson sales data for the 48 months preceding the storm. Using
the trend and seasonal method, the seasonal indexes and forecasts of sales assuming the hurricane had
not occurred are as follows:

Month Seasonal Index Month Forecast ($ million)

January 0.957 September 2.16


February 0.819 October 2.54
March 0.907 November 3.06
April 0.929 December 4.60
May 1.011
June 0.937
July 0.936
August 0.974
September 0.797
October 0.936
November 1.119
December 1.677

2. The data used for this forecast is the total sales for the 48 months preceding the storm for all
department sores in the county. Using the trend and seasonal method, the seasonal indexes and
forecasts of county-wide department store sales assuming the hurricane had not occurred are as
follows:

Month Seasonal Index Month Forecast ($ million)

January 0.773 September 50.55


February 0.813 October 53.20
March 0.976 November 66.78
April 0.935 December 103.11
May 0.989
June 0.924
July 0.901
August 1.017
September 0.861
October 0.907
November 1.141
December 1.763

3. By comparing the forecast of county-wide department store sales with actual sales, one can determine
whether or not there are excess storm-related sales. We have computed a "lift factor" as the ratio of
actual sales to forecast sales as a measure of the magnitude of excess sales.

Forecast Sales ($ million) Actual Sales ($ million) Lift Factor

50.55 69.0 1.365


53.20 75.0 1.410
66.78 85.2 1.276
103.11 121.8 1.181
273.64 351.0 1.283

From the analysis a strong case can be made for excess storm related sales. For each month, actual
sales exceed the forecast of what sales would have been without the hurricane. For the 4-month total,
actual sales exceeded the forecast by 28.3%.

Chapter 15

The explanation for the increase is that people had to replace real and personal property damaged by
the storm. In addition, the additional construction workers, the disaster relief teams, and so on,
created additional commercial activity in the area.

4. One approach would be to use the forecast of what sales would have been without the hurricane and
then multiply by the lift factor to account for the excess storm-related sales. Such an estimate of lost
sales is developed below:

Forecast ($ million) Lift Factor Lost Sales ($ million)

2.16 1.365 2.948 2.54 1.410 3.581 3.06 1.276 3.905


4.60 1.181 5.433
Total 15.867

Based on this analysis, Carlson Department Stores can make a case to the insurance company for a
business interruption claim of $15,867,000.

Another approach would be to use the 48 months of historical data to compute a market share for
Carlson. That is, compute Carlson’s sales as a fraction of county-wide department store sales. Then
you could develop a forecast of Carlson’s market share for September through December. Finally, an
estimate of lost sales for each of the four months can be obtained by multiplying the forecasts of
market share by the actual department store sales.

You might also like