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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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Presentation Transcript
sales forecasting

Sales Forecasting

MKT 311

Instructor:

Dr. James E. Cox, Ph.D

slide2

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 ) ?
slide6

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
slide8

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

slide9

Squared and Keep Sign (SSE)

- penalize extreme errors

- errors can offset one another

- shows direction of error

- not in original units

slide10

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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