The Importance of Forecasting Market Demand

As States continue to face constrained budgets, it is incumbent upon agency leadership to fine-tune their short- and long-term budgeting processes. PCG has found that forecasting market demand is a way state leaders to accurately allocate scarce government resources. Market forecasting makes a strong case for fiscal support because it relies heavily on a data driven decision making. It also offers state leaders a strategy that is non-partisan, and a level of transparency that appeals to both constituents and legislators. Ultimately, forecasting market demand ensures that the commitment of public funds will benefit the broader community.

But forecasting market demand for services isn’t always a standard practice. As a result, forecasting can be a tricky task to navigate depending on access to relevant data, as well as general knowledge of key factors to consider.  Which begs the question, what are creative strategies for government agencies to forecast market demand?

In partnership with state health departments, PCG has been able to help state agencies, particularly veterans’ services, utilize forecasted market demand in their decision making using the following key analyses: 

Defining your market sounds simple enough, and it is. It not only means defining the key service(s) or product(s) in question but also evaluating the likelihood of displacing other markets, as well as the impact of market substitutes. For example, if the market was veterans’ long term care nursing home services, when digging a layer deeper, we would probably find that the veterans’ long term care nursing home services market are impacted by non-veterans’ long term care nursing homes and federal veterans’ medical centers. This would mean that we would have to figure out how to address these substitute markets in our analysis, both quantitatively and qualitatively. And so, we break it down.

Breakdown your market into smaller segments, step two, can be less straightforward. Here, you should breakup your market into smaller digestible submarkets that follow consumer behavior. For example, understanding that often times the majority of veterans are Medicaid eligible, and thus, utilizing non-veterans’ long term care nursing homes, our submarkets would need to include the utilization of this substitute market. For that reason, we could choose Managed Care Organization Regions (MMCR) as our smaller segments. MMCRs represent a delivery system of coordinated and integrated care focused on cost containment, utilization, and quality. Understanding that there is a significant population of veterans accessing Medicaid, utilizing MMCRs captures delivery system networks with which many veterans are already familiar. 

A quick recap: so far we have defined our market and broke it down. Now it’s time to figure it out. 

Figuring out your market demand drivers requires you to both identify your drivers, as well as put a figure to these drivers (make them quantifiable). Identifying your drivers should capture the following as much as possible: current utilization, predicted utilization, consumer population growth, and current resources. If we’re still using the veterans’ long term care example, our demand drivers could be: percentage change in veteran population over a predicted time period, ratio of projected veterans per LTC bed, current occupancy rate of LTC facilities, and the current ratio of patient origination per LTC bed by region. Making these drivers quantifiable, or figuring it out, can be the most difficult analysis, but also has room for the most creativity and specialization.  When figuring out your market demand drivers, a one size fits all approach for this step won’t work, so it’s important to consider the impact each individual driver has on demand.