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Chapter 4 - Forecasting

The document discusses forecasting methods. It defines forecasts and factors that influence forecast accuracy such as trends, seasonality, and random events. Both qualitative and quantitative forecasting methods are outlined, including time series analysis, executive opinions, salesforce opinions, consumer surveys, and the Delphi method. Common quantitative techniques include the naive method, moving averages, and weighted moving averages. Key steps in the forecasting process are determining the purpose and time horizon and selecting and implementing a technique.

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Ak Al
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44 views

Chapter 4 - Forecasting

The document discusses forecasting methods. It defines forecasts and factors that influence forecast accuracy such as trends, seasonality, and random events. Both qualitative and quantitative forecasting methods are outlined, including time series analysis, executive opinions, salesforce opinions, consumer surveys, and the Delphi method. Common quantitative techniques include the naive method, moving averages, and weighted moving averages. Key steps in the forecasting process are determining the purpose and time horizon and selecting and implementing a technique.

Uploaded by

Ak Al
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 4 – Forecasting

Forecasts: are a basic input in the decision processes of operations management because they provide
information on future demand.

The expected level of demand can be a function of some structural variation, such as a trend or seasonal
variation.

Forecast accuracy is a function of the ability of forecasters to correctly model demand, random
variation, and sometimes unforeseen events.

Explain why forecasts are generally wrong?

1- that the same underlying causal system that existed in the past will continue to exist in the
future.
2- Forecasts are not perfect.
3- Forecast accuracy decreases as the time covered by the forecast—the time horizon—increases.
4- Forecasts for groups of items tend to be more accurate than forecasts for individual items

Elements of Good Forecast

1- forecast should be timely referred.


2- The forecast should be accurate
3- The forecast should be reliable.
4- The forecast should be expressed in meaningful units
5- The forecast should be in writing
6- The forecast should be cost-effective

Outline the steps in the forecasting process

1- Determine the purpose of the forecast.


2- Establish a time horizon
3- Obtain, clean, and analyze appropriate data. incorrect data before analysis.
4- Select a forecasting technique.
5- Make the forecast.
6- Monitor the forecast errors

Forecasting Error
Forecast error is the difference between the value that occurs and the value that was predicted for a
given period.

Hence, Error = Actual − Forecast: et = At - Ft

Where t = Any given period

Positive errors result when the forecast is too low,

negative errors when the forecast is too high.

Approaches to Forecasting

Qualitative methods consist mainly of subjective inputs, which often defy precise numerical description.

Quantitative methods involve either the projection of historical data or the development of associative
models that attempt to utilize causal (explanatory) variables to make a forecast.

Approaches to Forecasting (Qualitative Forecasts)

Executive Opinions

A small group of upper-level managers may meet and collectively develop a forecast.

2. Salesforce Opinions

Members of the customer service staff are good sources of information because of their direct contact
with consumers.

Consumer Surveys

it is the consumers who ultimately determine demand,

4. Delphi Method (Opinions of Experts)

involves circulating a series of questionnaires among individuals who possess the knowledge and ability
to contribute meaningfully.

Approaches to Forecasting (Quantitative Forecasts)

FORECASTS BASED ON TIME-SERIES DATA

A time series is a time-ordered sequence of observations taken at regular intervals (e.g., hourly, daily,
weekly, monthly, quarterly, annually).

Approaches to Forecasting (Quantitative Forecasts)


1. Trend: A long-term upward or downward movement in data. Population shifts, changing
incomes, and cultural changes often account for such movements

2. Seasonality: to short-term, fairly regular variations generally related to factors such as the
calendar or time of day

3. Cycles

4. Irregular Variations - are due to unusual circumstances such as severe weather conditions,
strikes, or a major change in a product or service.

5. Random Variations - are residual variations that remain after all other behaviors have been
accounted for.

NAÏVE METHOD (Quantitative)

uses a single previous value of a time series as the basis of a forecast.

1. Stable series - the last data point becomes the forecast for the next period.

2. Seasonal variations - the forecast for this “season” is equal to the value of the series last
“season.”

3. Trend - the forecast is equal to the last value of the series plus or minus the difference between
the last two values of the series

Techniques for Averaging (Quantitative)

1. Moving average

2. Weighted moving average

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