Forecasting
Explore the definition, rules, methods, and techniques of forecasting to predict internal costs, market trends, and plan effectively. Learn qualitative and quantitative methods with error measurement to enhance accuracy.
Forecasting
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Presentation Transcript
Forecasting Ross L. Fink
Forecasting • Definition--Forecasting tries to predict the future • Used for planning purposes • Forecasting goes beyond predicting demand • Internal manufacturing costs • Cost of raw materials and component parts • Cost and availability of energy • Interest rates • Stock prices
Rules of Forecasting • Your forecast is never correct • Forecasts assume some underlying causal system • Generally, the shorter the time horizon of the forecast, the more accurate the forecast • Generally, forecasting aggregations (groups of items) is more accurate than forecasting individual items
Forecasting Methods • Qualitative • Quantitative
Qualitative Forecasting Methods • Consumer surveys • Test marketing • Sales force composite • Executive opinion • Delphi technique • Panel of experts
Quantitative Forecasting Methods • Time series • Naïve • Moving averages • Exponential smoothing • Box-Jenkins • Associative or causal models • Simple regression • Multiple regression
Decomposition of Time Series Data • Believe that data consists of components • Trend • Seasons • Cycles • Random and irregular variations • Approach--isolate components and forecast separately and then recombine to obtain final forecast
Ways to Select Forecasting Method • Noise-dampening (smoothing) • Response (lag) • Error measurement
Error Measurement • Mean Absolute Deviation (MAD)--Most popular • Average Error (AE) or bias • Mean Square Error (MSE) • Mean Absolute Percent Error (MAPE) • Standard deviation
Error • where, • Et = error for period t • At = actual demand for period t • Ft = forecast for period t
Simple Exponential Smoothing OR Alpha (smoothing Constant) is between 0 and 1
