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Forecasting

Forecasting. Chapter 11. Outline. A Forecasting Framework Qualitative Forecasting Methods Time-Series Forecasting Moving Average Exponential Smoothing Forecast Errors Advanced Time-Series Forecasting Causal Forecasting Methods Selecting a Forecasting Method. A Forecasting Framework.

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Forecasting

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  1. Forecasting Chapter 11

  2. Outline • A Forecasting Framework • Qualitative Forecasting Methods • Time-Series Forecasting • Moving Average • Exponential Smoothing • Forecast Errors • Advanced Time-Series Forecasting • Causal Forecasting Methods • Selecting a Forecasting Method

  3. A Forecasting Framework • Focus of the chapter • Difference between forecasting and planning • Forecasting application in various decision areas of operations (capacity planning, inventory management, others) • Forecasting uses and methods (See Table 11.1)

  4. Use of Forecasting (Table 11.1)Operations Decisions

  5. Use of Forecasting (Table 11.1)Marketing, Finance, HRM

  6. Qualitative Forecasting Methods • Major methods: • Delphi Technique • Market Surveys • Life-cycles Analogy • Informed Judgement • Characteristics of the methods (see Table 11.2)

  7. Time-Series Forecasting • Common components in time-series (see Figure 11.1): • Average • Seasonality • Cycle • Trend • Error (random component) • “Decomposition” of time-series

  8. Moving Average • Simple Moving Average: • Weighted Moving Average:

  9. Exponential Smoothing • Simple Exponential Smoothing: • Smoothing Coefficient (alpha) determination • Determination of the initial forecast

  10. Time-Series Data Plot (Figure 11.2)

  11. Exponential Smoothing • Basic logic: • The forecast

  12. Forecast Errors • Cumulative Sum of Forecast Error (CFE) • Mean Square Error (MSE) • Mean Absolute Deviation (MAD) • Mean Absolute Percentage Error (MAPE) • Tracking Signal (TS)

  13. Cumulative sum of Forecast Errors Mean Absolute Percentage Error Tracking Signal Mean Square Error Mean Absolute Deviation Mean Error Forecast Errors: Formulas

  14. Advanced Time-Series Forecasting • Adaptive exponential smoothing • Comparison of time-series forecasting methods (see Table 11.5) • Box-Jenkins method

  15. Causal Forecasting Models • The general model: • Other forms of causal model (see Table 11.7): • Econometric • Input-output • Simulation models • Others

  16. Example of Causal Method Yt = a + b(t) F7 = 117.87 + 1.66 (7) = 129.47

  17. Selecting a Forecasting Method • User and system sophistication • Time and resource available • Use or decision characteristics • Data availability • Data pattern

  18. ME Graphical ComparisonMoving average method with various n

  19. MAD Graphical ComparisonMoving average method with various n

  20. MSE Graphical ComparisonMoving average method with various n

  21. MAPE Graphical ComparisonMoving average method with various n

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