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Forecasting Opman

The document discusses forecasting in operations management, emphasizing the importance of demand forecasting for aligning supply with demand. It covers various forecasting methods, including qualitative and statistical techniques such as naive forecasting, moving averages, exponential smoothing, and time series regression, along with their accuracy metrics like Mean Absolute Deviation and Mean Squared Error. Additionally, it provides sample computations and a summary of forecast accuracy for different methods, concluding that the best forecast for the 6th period is 65.

Uploaded by

Deanne Cain
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© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
3 views

Forecasting Opman

The document discusses forecasting in operations management, emphasizing the importance of demand forecasting for aligning supply with demand. It covers various forecasting methods, including qualitative and statistical techniques such as naive forecasting, moving averages, exponential smoothing, and time series regression, along with their accuracy metrics like Mean Absolute Deviation and Mean Squared Error. Additionally, it provides sample computations and a summary of forecast accuracy for different methods, concluding that the best forecast for the 6th period is 65.

Uploaded by

Deanne Cain
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FORECASTI

NG
A statement about the
future value of a
variable of interest.

The primary goal of


operations management
is to match supply to
demand.

Having a forecast of
FORECAST demand is essential for
determining how much
capacity or supply will be
needed to meet demand.
Product Service
Design Design Finance

Operations
FORECAST
Accounting

MIS
Human
Marketing Resource
FORECAST ACCURACY
Forecast Error

Mean Absolute
Deviation
Mean Squared
Error
Mean Absolute
Percent Error
Types of
Forecasting
QUALITATIVE FORECAST

Executive Sales Force Consumer Delphi


Opinion Opinions Surveys Technique
STATISTICAL FORECAST
TIME SERIES
Time-ordered sequence of observations taken at regular intervals
(e.g.hourly, daily, weekly, monthly, quarterly, annually).
The data may be measurements of demand, earnings, profits,
shipments, accidents, output, precipitation, productivity, or the
consumer price index
TIME SERIES – PATTERNS/BEHAVIOR

TREND SEASONAL
TIME SERIES – PATTERNS/BEHAVIOR

CYCLE IRREGULAR
VARIATION
TIME SERIES - NAÏVE METHOD
Naïve 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.
TIME SERIES – MOVING AVERAGE
Moving Average
•Forecast is based on an average of recent values

A weighted average is similar to a moving average, except


that it assigns more weight to the most recent values in a
time series.
TIME SERIES – EXPONENTIAL SMOOTHING
•Exponential smoothing
a sophisticated weighted averaging method that is still relatively
easy to use and understand. Each new forecast is based on the
previous forecast plus a percentage of the difference between that
forecast and the actual value of the series at that point.
Topics to Discuss
• Computation & Analysis • Sample Computation & Exercise
• Forecasting Accuracy
• Mean Absolute Deviation (MAD)
• Mean Squared Error (MSE)
• Mean Absolute Percent Error (MAPE)
• Forecasting Techniques
• Naïve Method
• Moving Average Method
• Weighted Moving Average Method
• Exponential Smoothing
• Time Series Regression
Forecasting Accuracy
Forecast Error

Mean Absolute
Deviation
Mean Squared
Error
Mean Absolute
Percent Error
Sample Computation
Compute for the
Forecast Error error

Period 1
Period Actual Forecast e

1 50 60 -10
2 70 50 20
3 60 70 -10
4 80 60 20
5 50 80 -30
Sample Computation
Mean Absolute
Compute the
Deviation
absolute value of
error for each
Period Actual Forecast period
1 50 60 -10 10
2 70 50 20 20
3 60 70 -10 10
4 80 60 20 20
Count
5 50 80 -30 30 n=5

Sum all |e| 90 Compute MAD


Sample Computation
Mean Squared
Error Compute the
squared value of
error for each
Period Actual Forecast period
1 50 60 -10 10 100
2 70 50 20 20 400
3 60 70 -10 10 100

4 80 60 20 20 400
5 50 80 -30 30 900

1900 Compute MSE


Compute the
Sample Computation absolute percent
error for each
Mean Absolute period
Percent Error

Period Actual Forecast

1 50 60 -10 10 100 20%


2 70 50 20 20 400 29%
3 60 70 -10 10 100 17%
4 80 60 20 20 400 25%
5 50 80 -30 30 900 60%

151%
Forecasting Techniques
Using this data, forecast the 6th
period with the least error
Period Actual

1 50
2 70
3 60
4 80
5 50

6
Naive
Impossible to Compute the
forecast. accuracy
No Actual on
previous period
Leave blank

Period Actual Forecast

1 50 - - - - -
2 70 50 20 20 400 29%
3 60 70 -10 10 100 17%
4 80 60 20 20 400 25%
5 50 80 -30 30 900 60%

6 50 80 1800 131%
Moving Average
To Forecast next period, average the 2
previous actual

Period Actual Forecast

1 50 Can’t Forecast. Need atleast two periods of previous actual

2 70 Can’t Forecast. Need atleast two periods of previous actual. Only 50 is given

3 60 60 0 0 0 0%
4 80 65 15 15 225 19%
5 50 70 -20 20 400 40%

6 65 35 625 59%
Moving Average
To Forecast next period, average the 3
previous actual

Period Actual Forecast

1 50 Can’t Forecast. Need atleast three periods of previous actual

2 70 Can’t Forecast. Need atleast three periods of previous actual. Only 50 is given

3 60 Can’t Forecast. Need atleast three periods of previous actual. Only 50 & 70 are given

4 80 60 20 20 400 25%
5 50 70 -20 20 400 40%

6 63.33 40 800 65%


Weight Score
Weighted Moving Most
Average
Recent 2 Most Recent nd
Most Recent: 3
2nd Most Recent: 2
Note: Weight Score
The divisor should can be change
be the total weight
Period Actual score Forecast
2nd Most
Recent 1 50 Can’t Forecast. Need atleast two periods of previous actual
Most
Recent 2 70 Can’t Forecast. Need atleast two periods of previous actual. Only 50 is given
In POV of
Period 3 3 60 62 -2 2 4 3%
4 80 64 16 16 256 20%
5 50 72 -22 22 484 44%

6 62 40 744 67%
Exponential Smoothing
For this problem, alpha = 0.5
Since no Compute
previous error. To be
forecast, use use on
Period Actual Forecast
naïve method formula
1 50 Can’t Forecast. No previous Forecast. Leave Blank

2 70 50 20 20 400 29%
3 60 60 0 0 0 0%
4 80 60 20 20 400 25%
5 50 70 -20 20 400 40%

6 60 60 1200 94%
Time Series Regression

Period Actual
(t) Forecast
(y)
1 50 50 1
2 70 140 4
3 60 180 9

4 80 320 16
5 50 250 25

52 670 85%
Summary
Method MAD MSE MAPE Forecast
Naïve 20 600 32.75% 50
2 MA 11.67 312.5 19.67% 65
3MA 20 800 32.50% 63.33
2WMA(3,2) 13.33 372 22.33% 62
Exp (a=0.5) 15 400 23.50% 60
Time Series 10.4 167.5 17.00% 65

Check lowest for each accuracy


Summary
Method MAD MSE MAPE Forecast
Naïve 20 600 32.75% 50
2 MA 11.67 312.5 19.67% 65
3MA 20 800 32.50% 63.33
2WMA(3,2) 13.33 372 22.33% 62
Exp (a=0.5) 15 400 23.50% 60
Time Series 10.4 167.5 17.00% 65

6th Period Forecast is 65


Summary
Method MAD MSE MAPE Forecast
Naïve 20 600 32.75% 50
2 MA 11.67 312.5 19.67% 65
3MA 20 800 1.17% 63.33
2WMA(3,2) 13.33 372 22.33% 62
Exp (a=0.5) 15 150 23.50% 60
Time Series 10.4 167.5 17.00% 65

6th Period Forecast is 65


Questions?
Suggestions?
Feedback?
THANKYOU!!

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