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Forecasting OMTQM

The document discusses various forecasting methods used in operations management including: 1. Judgmental forecasting which uses subjective inputs like executive opinions and customer surveys. 2. Time series forecasting which analyzes historical demand data and accounts for trends, seasonality, cycles, and irregular variations. 3. Naive forecasting which uses a single previous value as the forecast. 4. Averaging techniques like moving averages, weighted moving averages, and exponential smoothing which smooth out fluctuations in past demand data to forecast future demand.

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Micaella Timpug
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42 views

Forecasting OMTQM

The document discusses various forecasting methods used in operations management including: 1. Judgmental forecasting which uses subjective inputs like executive opinions and customer surveys. 2. Time series forecasting which analyzes historical demand data and accounts for trends, seasonality, cycles, and irregular variations. 3. Naive forecasting which uses a single previous value as the forecast. 4. Averaging techniques like moving averages, weighted moving averages, and exponential smoothing which smooth out fluctuations in past demand data to forecast future demand.

Uploaded by

Micaella Timpug
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Operations

Management and TQM

CBME 11
ROSSBETH B.
LIANGCO
Module 5 and 6
Forecasting
and
Forecasting
Methods
What is Forecasting?

Capital
Plant capacity requirements Expenditures
Personnel
Requirements
FORECASTING

What is Forecasting?
- the process of using historical data to predict future events.

- basic input in the decision processes of operations management


because they provide information on future demand.
USES OF FORECAST
Planning the system
- involves long-range plans about the types of products and
services to offer, what facilities and equipment to have, where
to locate, and so on.

Planning the use of the system


- refers to short-range and intermediate-range planning, which
involve tasks such as planning inventory and workforce
levels, planning purchasing and production, budgeting, and
scheduling.
Two uses for forecasts

a. Planning the system


- involves long-range plans about the types of products and
services to offer, what facilities and equipment to have, where
to locate, and so on.

a. Planning the use of the system


- refers to short-range and intermediate-range planning, which
involve tasks such as planning inventory and workforce
levels, planning purchasing and production, budgeting, and
scheduling.
1.1. Features Common to All Forecasts

● Assumes causal system -


Past ====> Future
● Forecast rarely perfect because of randomness-
Actual results usually differ from predicted values; Allowances
should be made for forecast errors.
● Forecast accuracy decreases as time horizon
increases - short-range forecasts must contend with fewer
uncertainties than longer-range forecasts, so they tend to be more
accurate.
Roles of Forecasting
a. Basis for Planning
- Forecasting provides the knowledge of planning premises within which the
managers can analyse their strengths and weaknesses.
- Forecasting provides the knowledge about the nature of future conditions.
a. Facilitating Co-ordination and Control
- It provides interactive opportunities for better unity and co-ordination in the
planning process because of information that was collected from various
internal and external sources.
a. Success in Organisation
- Forecasting provides clues about those and indicates when the alternative
actions should be taken.
Elements of a Good Forecast
a. The forecast should be timely. Usually, a certain amount of
time is needed to respond to the information contained in a
forecast.
b. The forecast should be accurate, and the degree of
accuracy should be stated. Plan for possible errors to provide a
basis for comparing alternative forecasts.
c. The forecast should be reliable; it should work consistently.

Elements of a Good Forecast


d. The forecast should be expressed in meaningful units.
Financial planners need to know how many dollars will be needed,
production planners need to know how many units will be needed,
and schedulers need to know what machines and skills will be
required
e. The forecast should be in writing. A written forecast will
permit an objective basis for evaluating the forecast once actual
results are in.
Elements of a Good Forecast
f. The forecasting technique should be simple to understand
and use. Misuse of techniques is an obvious consequence.
g. The forecast should be cost-effective: The benefits should
outweigh the costs.

Cost -effective means producing good results without costing a lot of money.

Elements of a Good Forecast


Steps in the Forecasting Process

There are six basic steps in the forecasting process:

a. Determine the purpose of the forecast. How will it be used and when will it be
needed?

b. Establish a time horizon. The forecast must indicate a time interval, keeping in
mind that accuracy decreases as the time horizon increases.

c. Obtain, clean, and analyze appropriate data. Obtaining the data can involve
significant effort. Once obtained, the data may need to be “cleaned” to get rid of
outliers and obviously incorrect data before analysis.
Steps in the Forecasting Process

d. Select a forecasting technique.


e. Make the forecast.
f. Monitor the forecast errors. The forecast errors should be
monitored to determine if the forecast is performing in a satisfactory
manner. If it is not, reexamine the method, assumptions, and validity
of data, and so on; modify as needed; and prepare a revised forecast.
Forecasting Methods

Two (2) General Approaches to Forecasting


A. Quantitative Methods
- consist mainly of subjective inputs, which often defy precise numerical
description.
- involve either the projection of historical data or the development of
associative models that attempt to utilize causal variables to make a forecast.
A. Qualitative Techniques
- permit inclusion of soft information (e.g., human factors, personal opinions,
hunches) in the forecasting process.
Forecasting Techniques

TYPES OF FORECAST
▰ Judgmental- uses subjective inputs
▰ Time Series- uses historical data assuming the future will be
like the past
▰ Associative Models- uses explanatory variables to predict
the future
1. Judgmental Forecast

a) Executive Opinions
b) Salesforce Opinions
c) Customer Surveys
2. Time Series Forecast

A time series is a time-ordered sequence of observations taken at


regular intervals (e.g., hourly, daily, weekly, monthly, quarterly,
annually).

a.Trend refers to a long-term upward or downward movement in the


data.
b. Seasonality refers to short-term, fairly regular variations
c. Cycles are wavelike variations of more than one year’s durations
d. Irregular variations are due to unusual circumstances
e. Random variations cause by chance
Time Series Forecast
Time Series Forecast

Trend
Time Series Forecast
Time Series Forecast

Cycles
Time Series Forecast

Random Variation
Time Series Forecast
Time Series Forecast

Identify and Analyze


Time Series Forecast
Identify and Analyze
Time Series Forecast
Identify and Analyze
3. Naive Forecast
Naive Forecast

A naive forecast uses a single previous


value of a time series as the basis of a
forecast. The naive approach can be used
with a stable series (variations around an
average), with seasonal variations, or
with trend.
Naive Forecast
4. Averaging Techniques

● Moving Average

● Weighted Moving Average

● Exponential Smoothing

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