Demand factor - Management budget

11.11.2014

Management budget is used to increase production efficiency. Management budget has the strongest effect on:

  1. Demand
  2. Broken parts
  3. Force majeure - details you can read in article about Insurance plan

 

Elasticity of demand from the management budget in 1 period

The impact of an increase in the management budget on demand has diminishing effect. Impact of management budget on demand is almost the same for all products and markets. Graph shows results of tests of several control groups. Vertically - relative change in demand compared to the previous period, horizontally - absolute value of the management budget.

The influence of competitors is negligible. The optimal value of the administrative budget is in the range of 12-15% of administrative expenses in the current period.

 

Elasticity of demand from the management budget in period 2

Vertical - relative change in demand compared to 1 period. Horizontal - absolute value of the management budget.

The effect of the management budget on demand is cumulative, investments in the management budget for the previous period are taken into account.

 

Broken parts

Effect acts evenly on all products. The effect is cumulative, investments in management budget of previous periods are taken into account. Vertical - absolute value of broken parts in % during the production of parts. Horizontal - absolute value of the management budget.

 

Hints

  1. Strong cumulative effect
  2. Dependence of demand on management budget is expressed by a power function
  3. Effect on demand from the management budget is equal for all markets and products
  4. Dependence of demand on management budget is not influenced by competitors in the group

 

Automatic demand forecast based on management budget is built into the Calculation model, which can be purchased in our store.