Forecasting. Learning Objectives. List the elements of a good forecast. Outline the steps in the forecasting process. Describe at least three qualitative forecasting techniques and the advantages and disadvantages of each.
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Forecasting
What is FORECAST ?
Forecasts affect decisions and activities throughout an organization
I see that you willget an A this trimester.
Timely
Accurate
Reliable
Easy to use
Written
Meaningful
“The forecast”
Step 6 Monitor the forecast
Step 5 Make the forecast
Step 4 Obtain, clean and analyze data
Step 3 Select a forecasting technique
Step 2 Establish a time horizon
Step 1 Determine purpose of forecast
Irregularvariation
Trend
Cycles
90
89
88
Seasonal variations
Time
Uh, give me a minute....
We sold 250 wheels last
week.... Now, next week we should sell....
The forecast for any period equals the previous period’s actual value.
Atn+ … At2 + At1
Ft = MAn=
n
wnAtn+ … wn1At2 + w1At1
Ft = WMAn=
wn+wn1+…+w1
Atn+ … At2 + At1
Ft = MAn=
n
Actual
MA5
MA3
Ft = Ft1 + (At1  Ft1)
Ft = Ft1 + (At1  Ft1)
Example 3  Exponential Smoothing
Actual
.4
.1
Ft
Ft = a + bt
0 1 2 3 4 5 t
n
(ty)

t
y
b
=
2
2
n
t

(
t)
y

b
t
a
=
n
5 (2499)

15(812)
12495

12180
b
=
=
=
6.3
5(55)

225
275

225
812

6.3(15)
a
=
=
143.5
5
y = 143.5 + 6.3t
Parabolic
Exponential
Growth
Computedrelationship
A straight line is fitted to a set of sample points.
2
(
Actual
forecast)
MSE
=
n

1
(
Actual
forecast
/ Actual*100)
MAPE
=
n
Actual
forecast
MAD
=
n
(Actual

forecast)
Tracking signal
=
MAD
Bias – Persistent tendency for forecasts to be
Greater or less than actual values.
Exponential Smoothing
Linear Trend Equation
Simple Linear Regression