Professional Documents
Culture Documents
Management
Topic 2 Forecasting
UiTM Shah Alam
Lecturer: Pn. Ahsana Aqilah Ahmad
T1-A14-2C
of
all business
decisions
Production
Inventory
PersonnelNY- MEM 575: Courtesy of Mc Graw
05/14/17 3
Hill and Pearson-Prentice Hall
Forecasting Time Horizons
1. Short-range forecast
Up to 1 year, generally less than 3 months
Purchasing, job scheduling, workforce
levels, job assignments, production levels
2. Medium-range forecast
3 months to 3 years
Sales and production planning, budgeting
3. Long-range forecast
3+ years
New product planning, facility location,
research and development
4. Exponential smoothing
5. Trend projection
Associative
6. Linear regression Model
Trend Cyclical
Seasonal Random
Seasonal peaks
Actual
demand
Average
demand over
Random four years
variation
| | | |
1 2 3 4
Year Figure 4.1
NY- MEM 575: Courtesy of Mc Graw
05/14/17 15
Hill and Pearson-Prentice Hall
Trend Component
1. Persistent, overall upward or
downward pattern
2. Changes due to population,
technology, age, culture, etc.
3. Typically several years
duration
Number of
Period Length Seasons
Week Day 7
Month Week 4-4.5
Month Day 28-31
Year Quarter 4
Year Month 12
05/14/17
Year
NY- Week
MEM 575: Courtesy of Mc Graw 52 17
Hill and Pearson-Prentice Hall
Cyclical Component
1. Repeating up and down movements
2. Affected by business cycle, political,
and economic factors
3. Multiple years duration
4. Often causal or
associative
relationships
0 5 10 15 20
NY- MEM 575: Courtesy of Mc Graw
05/14/17 18
Hill and Pearson-Prentice Hall
Random Component
1. Erratic, unsystematic, residual
fluctuations
2. Due to random variation or
unforeseen events
3. Short duration and
non-repeating
M T W T F
NY- MEM 575: Courtesy of Mc Graw
05/14/17 19
Hill and Pearson-Prentice Hall
Naive Approach
Assumes demand in next
period is the same as
demand in most recent period
e.g., If January sales were 68,
then February sales will be 68
Sometimes cost effective and
efficient
Can be good starting point
NY- MEM 575: Courtesy of Mc Graw
05/14/17 20
Hill and Pearson-Prentice Hall
Techniques for Averaging
1. Moving average
2. Weighted moving average
3. Exponential smoothing
Moving
30 Average
28 Forecast
26 Actual
24 Sales
22
Sales
20
18
16
14
12
10
| | | | | | | | | | | |
J F M A M J J A S O N D
NY- MEM 575: Courtesy of Mc Graw
05/14/17 24
Hill and Pearson-Prentice Hall
Weighted Moving Average
1. Used when trend is present
Older data usually less important
2. Weights based on experience
and intuition
20
Actual
15 sales
10 Moving
average
5
| | | | | | | | | | | |
J F M A M J J A S O N D
Figure 4.2
NY- MEM 575: Courtesy of Mc Graw
05/14/17 27
Hill and Pearson-Prentice Hall
Potential Problems With
Moving Average
Ft = Ft 1 + (At 1 - Ft 1)
(Actual - Forecast )2
MSE =
n
Wee 1 2 3 4 5 6 7 8
k
Sale 415 389 420 382 410 432 405 421
s
(382+410+432+405+421)/5 = 410.0