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Forecasting: Elements, Steps, Approaches

This document discusses various elements, steps, and approaches to forecasting. It provides examples of forecasts in business and daily life. There are three main types of forecasting approaches discussed: judgmental forecasts based on opinions, time series forecasts that project past patterns, and associative models using explanatory variables. The key elements of a good forecast are that it should be timely, accurate, reliable, expressed meaningfully, in writing, simple to understand, and cost-effective. The main steps in the forecasting process are to determine the purpose, establish a time horizon, select a technique, analyze relevant data, make the forecast, and monitor it.

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38 views

Forecasting: Elements, Steps, Approaches

This document discusses various elements, steps, and approaches to forecasting. It provides examples of forecasts in business and daily life. There are three main types of forecasting approaches discussed: judgmental forecasts based on opinions, time series forecasts that project past patterns, and associative models using explanatory variables. The key elements of a good forecast are that it should be timely, accurate, reliable, expressed meaningfully, in writing, simple to understand, and cost-effective. The main steps in the forecasting process are to determine the purpose, establish a time horizon, select a technique, analyze relevant data, make the forecast, and monitor it.

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ravina10008
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© Attribution Non-Commercial (BY-NC)
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Download as PPTX, PDF, TXT or read online on Scribd
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FORECASTING

ELEMENTS , STEPS , APPROACHES

WHAT IS A FORECAST ?
Eg : New car buyer makes the decision wants it as soon as possible , If dealer X does not have he goes to Y. Dealer must anticipate Dealer does not know for sure Reasonable approximation Forecast helps Managers to reduce uncertainty & develop more meaningful plans

Forecasting in day to day life


Can I cross the road before that car comes/ Will I get this job ? How much food needed for the party? When should I leave the class to go to movies? Beach? Restaurant? Hotel : How much fish should I buy as IFFI started ? Decision : current situation & past experience

In Business more formal methods..


Accounting: cost estimates, profit projection.. Finance :funding ,capex, replacements , loans HR:hiring, training, lay off, outplacements.. Mktg :Price, promo, advertising, e biz., MIS : what info , how fast , Internet, ERP.. Oprtns: Schedules, work loads, outsourcing, Services : maintenance , training soft skills, CRM.

FORECAST
A forecast is a statement about the future value of a variable such as demand or interest Forecasting techniques generally assume that the same underlying causal system that existed in the past and continue to exist in the future . With stiff competition - agility, flexibility, responsiveness is the factors to win ( key factors)

Forecast in an organization ..
Accounts: profit projection / cash flow Marketing : competition / promotion Operation : schedules / targets absenteeism Clinic : how may patients? Restaurant : how many customers? Law firm : How many clients? Court cases? Hair dresser? Tailor? Fish vendor? Baker? Hand cart vendor at Miramar? Florist? Bhel puriwala?

Uses of forecast
One : Help managers to Plan the system Two : Help managers to plan the use of the system.

Common features of all Forecast


Forecast technique generally assume that the system exited in the past will continue to exist in future as well Forecasts are rarely perfect: actual results usually differ from predicted values Forecasts for groups of items tend to be more accurate than forecast for individual items Forecast accuracy decreases as the time period increases- the time horizon

ELEMENTS OF A GOOD FORECAST


The forecast should be TIMELY Should be accurate degree to be stated Should be reliable Expressed in meaningful units Should be in writing Simple to understand and use Cost effective

STEPS IN FORECASTING PROCESS


Determine the purpose Establish a time horizon Select forecasting technique Gather and analyze relevant data Make the forecast Monitor the forecast

APPROACHES TO FORECASTING
Judgmental forecasts ; Forecasts that use subjective inputs such as opinions from consumers surveys, sales staff, managers, executives and experts. Time series forecasts: Forecasts that project patterns identified in recent times observations Associative models: Forecasting techniques that use explanatory variables Eg Demand for paint Exterior, all weather, drying time, advertisement, inside/outside temp , ease of clean up etc.,

Judgment &Opinion.
Executive opinions..Small internal group marktg, Sales, prodn., finance meet & decide Sales force opinion: ( also incl leading dealer distributors inputs Consumer surveys : sample surveys and try to derive some inputs What are the short coming of each.? discuss

Other method Delphi Method


Managers and staff complete a series of questionnaires, each developed from the previous one, to achieve consensus forecast May be useful in technology inputs ERP solutions, Video phone to get data etc.,

Forecast Time series data


Trend : long term upward or downwards data Seasonality : Short term fairly regular restaurant, supermarkets, theaters. School uniform . Umbrellas Cycles .. Wavelike variations Irregular variation cashew crop / mango yield is less more Random variation..

Nave method
This method uses a single previous value of a time series as the basis of a forecast. Eg : Traffic on Mandovi bridge on any Monday is same All students in MBA class are studious and sincere and do not copy!!

Techniques of averaging
Moving average: Average number of recent actual values , up dated as new values become available Weighted average More recent values in a series are given more weight in computing a forecast -- eg Exponential smoothing. Weighted average method based on previous forecast plus a percentage of forecast error. ..eg

Exponential smoothening
Surprisingly accurate Formulating exponential modelis relatively easy The user can understand how the model works Little computation is required to use the model Smaller computer storage Test for accuracy is easy to compute -----------------------------------------------------------Let us take each examples.

Simple Trend Equation


Y = mX + C .? eg ..

SIMPLE LINEAR REGRESSION


Predictor variable : that can be used for predict values of the variable of interest Regression : Techniques of fitting a line to a set of points Least squares line minimizes the sum of he squared vertical deviations around the line

Linear Regression Examples


Height of father and son Height Vs weight Agricultural production Vs wholesale price Mothers weight Vs babys weight Age of bride Vs Bride groom

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