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Sales Forecasting. MKT 311 Instructor: Dr. James E. Cox, Ph.D. The Forecasting Process. Set the objective of the forecast. Select Possible Forecasting Technique(s). Data Collection and Preparation. Parameterize the technique(s).

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Sales forecasting

Sales Forecasting

MKT 311

Instructor:

Dr. James E. Cox, Ph.D


The Forecasting Process

Set the objective of the forecast

Select Possible Forecasting Technique(s)

Data Collection and Preparation

Parameterize the technique(s)

Select Technique(s) to Be used:Technique Evaluation and Selection

Application of Technique(s) and Forecast Revision

Evaluation of technique Performance


Step 4 parameterize the techniques
Step 4: Parameterize the Techniques

  • Basic Procedure

  • Error Measurement

    • ME = mean error

    • MSE = mean squared error

    • MAD = mean absolute deviation

    • MPE = mean percentage error

    • MAPE = mean absolute percentage error

    • SD = standard deviation

      (or RMSE = root mean squared error)

    • SSE = signed square error


Questions to ask regarding which error to use
Questions to Ask Regarding Which Error to Use

  • Is the manager looking for a long-term perspective; i.e. more interested in final result then by period-by-period accuracy? Is the period-by-period accuracy more important than ultimate accuracy?

  • Would the manager have trouble comprehending unless “regular” units are used to express error (accuracy ) ?


  • Is the manager willing to accept more error if the (sales) base is larger?

  • Would extreme error be very costly so that manager would be willing to take lower overall accuracy if extreme error could be avoided for any one period?

  • Does the direction (sign) of error makes a difference?


Characteristics of error measures
Characteristics of Error Measures

  • Mean Error (ME)

    - shows direction of error

    - does not penalize extreme deviations

    - errors cancel out (no idea of how much)

  • Mean Absolute Deviation (MAD)

  • - shows magnitude of overall error

  • - does not penalize extreme deviations

  • - errors do not cancel out

  • - no idea of direction of error


  • Mean Squared Error (MSE)

  • - penalizes extreme errors

  • - errors do not offset one another

  • - not in original units

  • - does not show direction of error

  • Standard Deviation (SD)

    - penalizes extreme errors

    - errors do not offset one another

    - in original units


Squared and Keep Sign (SSE)

- penalize extreme errors

- errors can offset one another

- shows direction of error

- not in original units


  • Mean Percentage Error (MPE)

  • - takes percentage of actual sales

  • - does not penalizes extreme error

  • - errors can offset one another

  • - assumes more sales can absorb more error in units

  • Mean Absolute Percentage Error (MAPE)

    - takes percentage of actual sales

    - does not cancel offsetting errors

    - no penalty for extreme errors

    - assumes more sales can absorb more error in units


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