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Forecasting
FORECAST
A statement about the future value of a variable of interest.
Forecasts are the basis for budgeting, planning capacity, sales,
production and inventory, personnel, purchasing and many more.
Forecasts play an important role in the planning process because
they enable managers to anticipate the future so they can plan
accordingly.
7.
Is accuracy of No 8b. Select new forecast
forecast model or adjust
acceptable? parameters of existing
model
Yes
9. Adjust forecast based 10. Monitor results and
8a. Forecast over
on additional qualitative measure forecast
planning horizon
information and insight accuracy
APPROACHES TO FORECASTING
Judgmental Forecasts
Forecasts that use subjective inputs such as opinions from consumer
surveys, sales staff, managers, executives and experts.
Associative Model
Forecasting technique that uses explanatory variables to predict
future demand.
TIME - SERIES FORECASTS
A time series is a time ordered sequence of observations taken
at regular intervals; e.g. – hourly, daily, weekly, monthly etc.
Analysis of time series data requires the analyst to identify the
underlying behavior of the series. This can often be accomplished
by merely plotting the data and visually examining the plot.
Trend
Cycles
90
89
88
Seasonal variations
FORECASTING METHOD
Naive Method
The forecast for any period equals the previous period’s value.
The naive approach can be used with a stable series (variations
around an average), with seasonal variations or with trend.
A i
MAn = i=1
n
WEIGHTED MOVING AVERAGE
EXPONENTIAL SMOOTHING
Weighted averaging method based on previous forecast plus a
percentage of the forecast error.