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Forecasting

This document discusses various quantitative and qualitative forecasting techniques used in operations management and total quality management. It describes methods like time series analysis, moving averages, exponential smoothing, causal models, straight line method, and linear regression. It also defines metrics for measuring forecast accuracy such as bias, mean absolute deviation, mean absolute percentage error, and mean squared error.

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Karylle Osorio
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21 views

Forecasting

This document discusses various quantitative and qualitative forecasting techniques used in operations management and total quality management. It describes methods like time series analysis, moving averages, exponential smoothing, causal models, straight line method, and linear regression. It also defines metrics for measuring forecast accuracy such as bias, mean absolute deviation, mean absolute percentage error, and mean squared error.

Uploaded by

Karylle Osorio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Operations Management and

Total Quality Management

Forecasting (Part 2)
Techniques in Forecasting
 Quantitative Forecasting (Objective)
 Qualitative Forecasting (Subjective)
Methods in Quantitative Forecasting
 Time Series Analysis
 Forecasting Unassigned Variation
 Moving-Average Forecasting
 Exponentially smoothed forecasting
 Causal Models
 Other Forecasting Methods
 Straight Line Method
 Simple Linear Regression
Forecast Accuracy
 Forecast bias – persistent tendency for forecast to be greater
or less than the actual values of a time series.
 Forecast error – difference between the actual value and the
value that was predicted for a given period.

 Bias
 Mean Absolute Deviation (MAD)
 Mean Absolute Percentage Error (MAPE)
 Mean Squared Error
Time Series Analysis
Simple time series
plot a variable over
time then, by
removing underlying
variations with
assignable causes, use
extrapolation
techniques to predict
future behavior
Moving Average
The moving-average
approach to forecasting
takes the previous n
periods’ actual demand
figures, calculates the
average demand over
the n periods, and uses
this average as a
forecast for the next
period’s demand
Exponential Smoothing
The exponential-
smoothing approach
forecasts demand in
the next period by
taking into account the
actual demand in the
current period and the
forecast which was
previously made for
the current period
Causal Models
Causal models often
employ complex
techniques to
understand the strength
of relationships
between the network of
variables and the
impact they have on
each other
Straight Line Method

The straight-line method is one of the simplest


and easy-to-follow forecasting methods. A
financial analyst uses historical figures and trends
to predict future revenue growth.
Linear Regression
Regression analysis is a widely used tool for
analyzing the relationship between variables for
prediction purposes
Linear Regression
Forecast Error
Forecast bias – persistent tendency for forecast to be
greater or less than the actual values of a time series.
Forecast error – difference between the actual value and the
value that was predicted for a given period.
Bias
Indicates on an average basis, whether the forecast is too high
(negative bias indicates over forecast) or too low (positive bias
indicates under forecast). The Running Sum of Forecast Errors
(RSFE) provides a measure of forecast bias
Mean Absolute Deviation
indicates on an average basis, how many units the
forecast is off from the actual data
Mean Absolute Percentage Error
indicates on an average basis, how many percent the
forecast is off from the actual data
Mean Square Error
a forecast error measure that penalizes large errors
proportionately more than small errors

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