Forecasting Fundamentals

Forecasting Fundamentals
Nada R. Sanders, PhD

Forecasting Fundamentals
Copyright Business Expert Press, LLC, 2017.
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any
meanselectronic, mechanical, photocopy, recording, or any other
except for brief quotations, not to exceed 400 words, without the prior
permission of the publisher.
First published in 2017 by
Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-60649-870-5 (paperback)
ISBN-13: 978-1-60649-871-2 (e-book)
Business Expert Press Supply and Operations Management Collection
Collection ISSN: 2156-8189 (print)
Collection ISSN: 2156-8200 (electronic)
Cover and interior design by Exeter Premedia Services Private Ltd.,
Chennai, India
First edition: 2017
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.

Abstract
This book is for everyone who wants to make better forecasts. This book
is not about mathematics and statistics. It is about following a well-
established forecasting process to create and implement good forecasts.
This is true whether you are forecasting global markets, product demand,
competitive strategy, or market disruptions.
Today, most forecasts are generated using software. However, no
amount of technology and statistics can compensate for a poor forecasting process. Forecasting is not just about generating a number. Forecasters
need to understand the problems they are trying to solve. They also need
to follow a process that is justifiable to other parties and be implemented
in practice. This is what this book is about.
Business leaders know that accurate forecasting is a critical organizational capability. Forecasting is predicting the future, and the list of
what needs to be predicted to run a world-class organization is endless. Forecasting goes well beyond simply predicting demand or sales.
Accurate forecasts are essential for identifying new market opportunities,
forecasting risks, events, supply chain disruptions, innovation, competition, market growth, and trends. It also includes the ability to conduct
what-if analysis to understand the tradeoff implications of decisions.
Companies can navigate this daunting landscape and improve their forecasts by following some well-established principles and bearing in mind
certain caveats to conventional wisdom.
This book is written to provide the fundamentals business leaders need
in order to make good forecasts. These fundamentals hold true regardless
of what is being forecast and what technology is being used. This book
provides the basic foundational principles all companies need to achieve
competitive forecast accuracy.

Keywords
causal methods, collaborative forecasting, forecasting, forecast accuracy
measures, forecasting analysis, forecasting in business, forecasting
methods, forecasting process, forecasting technology, judgmental forecasting, time-series forecasting

Contents
Section I

Forecasting Basics 1

Chapter 1

Forecasting in Business3

Chapter 2

The Forecasting Process17

Section II

Measuring Forecast Accuracy 29

Chapter 3

Forecast Accuracy Measures31

Section III

Basics of Forecasting Methods 49

Chapter 4

Categories of Forecasting Methods51

Chapter 5

Judgmental Forecasting Models65

Chapter 6

Statistical Forecasting Models75

Section IV

Forecasting in the Business Environment 89

Chapter 7

Technology in Forecasting91

Chapter 8

Managing the Forecasting Process105

Notes119
References121
Index123

SECTION I

Forecasting Basics

CHAPTER 1

Forecasting in Business
My interest is in the future because I am going to spend the rest of
mylife there.
C.F. Kettering

What Is Forecasting?
Forecasting is the process of predicting the future. Any time we make a
prediction or estimate of a future event, we are forecasting. We are always
making forecasts even though we may not think of it in a formal way.
Here are some examples of forecasts.
Predicting the afternoons weather
Estimating how much time it will take to drive to a
friendshouse
The price of tomatoes at the grocery store tomorrow
Who will win the Presidential election?
When the new iPhone will go on sale?
Whether you will get a raise this year
In business, we often associate forecasting with predicting customer
sales or product demand. Although forecasting is certainly used to estimate sales and demand, forecasting involves predicting a much broader
set of issues. Just like in our personal life, any time we make a business
prediction we are forecasting. Here are some examples.

Sales of pumpkin pies at Halloween

Demand for next years car models
Predicting availability of suppliers
Predicting a resource shortage, such as shortage of coffee due
to a drought

FORECASTING FUNDAMENTALS

Predicting passage of a health care bill and how it will impact

our business
Making risk assessments for various business ventures
Most people assume that forecasting always follows a formal
process. However, whenever we try to predict future events or make
estimates of outcomeswhether in business or our personal lifewe
are forecasting.
Forecasting is one of the most important business functions because
all other business decisions are based on a forecast of the future. Decisions such as which markets to pursue, which products to produce, which
suppliers will be most reliable, which resources will be scarce, how much
inventory to carry, and how many people to hire, all require a forecast.
Poor forecasting results in incorrect business decisions and leaves the
company unprepared to meet future demands. The consequences can be
very costly in terms of lost sales, pursuing wrong markets, making wrong
decisions, and can even force a company out of business.
Forecasts are so important that companies invest billions of dollars in
technologies that can help them better plan for the future. For example,
the ice cream giant Ben & Jerrys has invested in business intelligence
software that tracks the life of each pint of ice cream, from ingredients to
sales. Each pint is stamped with a tracking number that is stored in an
Oracle database. Then the company uses the information to track trends,
problems, and new business opportunities. They can track such things as
seeing if the ice cream flavor Chocolate Chip Cookie Dough is gaining
on Cherry Garcia for the top sales spot, product sales by location, and
rates of change. This information is then used to more accurately forecast
product sales. Numerous other companies, such as Proctor & Gamble,
General Electric, Lands End, Sears, and Red Robin Gourmet Burgers,
are investing in the same type of software in order to improve forecast
accuracy.

Why Is Forecasting Important?

Forecasting is one of the most important business activities. Lets look at
the many reasons why this is the case.

Forecasting in Business 5

1. Forecasts are the foundation for all decisions. The reason forecasting is so important is that all other business decisions are based
on a forecast. In fact, a business decision cannot be made without
a forecast. Consider a company deciding how much to produce of
a product and in which markets to distribute that product in order
to maximize sales. In this case, many forecasts must be generated
for different markets and compared. Similarly a company may wish
to identify future customer trends to better design new products,
predict availability of key materials used in production, or identify
emerging competition to know how to better define its strategy.
Acompany may also need to anticipate events such as new regulations and tariffs, price increases by suppliers or supply shortages, and
disruptions that may prevent deliveries.
 Perhaps a company in the food service industry has decided to
increase the amount of coffee it purchases in anticipation of a shortage due to a drought in South America. Maybe a rise in the cases of
the flu is prompting a vaccine manufacturer to increase production
of vaccines. Perhaps a university has chosen to expand its courses
in business analytics due to a forecast of a rise in demand for such
programs. All these decisions are based on a forecast of the future. In
fact, these decisions cannot be made without a forecast.
2. Forecasts impact decisions of different time frames and organizational levels. Forecasting is further complicated by the fact that
business decisions require both long-term and short-term forecasts. Long-term forecasts support strategic planning and include
decisions such as market trends, behavior and shifts in competitive
markets, emerging competition, and long-term expansions.
By contrast, short-term forecasts support tactical decisions. They
address questions such as how many stock keeping units or SKUs
of a product a retailer expects to selland therefore decide on how
much inventory to hold in stockor how many workers to schedule
for the next shift at a call center.
3. Forecast accuracy impacts cost and customer service. Improving
forecast performance has been shown to lead to significant benefits
for organizations. One benefit is lowering costs. Accurate forecasting
is an important element of cost control.

FORECASTING FUNDAMENTALS

Forecasts that are too high mean the company is allocating

more resources that will be needed. This means extra products
produced, extra inventory and higher inventory costs (e.g.,
holding costs and markdowns), and extra staff.
Forecast that are too low mean the company has not allocated
enough resources that will be needed. This means not enough
products are being produced, resulting in stockout cost and
opportunity cost of lost sales (e.g., lost customers, revenues,
and profits).
In either case a company incurs a cost. Improved forecast accuracy
can reduce these costs by a substantial amount. The reasons are that
improved forecast accuracy means less waste such as excess inventory,
staff, materials, and wasted processes. When good forecasts are generated,
companies make better decisions as to how much inventory to produce
and stock. They make better production and staffing decisions, resulting
in less waste. Another benefit is improved responsiveness such as higher
customer service. Better forecasts enable companies to be more prepared
to meet customer needs.
Notice that the quality of business decisions is dependent upon the
quality and accuracy of the forecast upon which it is based. As consumers
we all experience the impact of poor forecasting, such as a product being
out of stock at a retailer or a delivery being late. These are all situations
that illustrate poor forecast accuracy.
Key Points

Good forecasts
Reduce cost
Reduce waste (e.g., inventory, staff, materials, and processes)
Improve responsiveness
Improve customer service

Forecasting Versus Planning

We have explained what forecasting is and its importance. We also understand that forecasts drive all business decisions. This process is called

Forecasting in Business 7

planning. Planning is the process of deciding on specific actions in anticipation of the forecast.
When we look at a weather forecast and anticipate rain, we plan by
carrying an umbrella. Similarly a business may order more items to stock
in anticipation of higher demand, such as higher ice cream sales in the
summer. Have you ever gone to a restaurant and been told that they are
sold out of their specials or gone to the bookstore and found that the
books are on backorder? These are examples of poor planning as a result
of poor forecasts. Planning for any event requires a forecast of the future.
Whether in business or in our own lives, we make forecasts of future
events. Based on those forecasts we make plans and take action.
In business we often confuse planning with forecasting. Business
managers often say something similar to the following: Our forecast is
to produce 6,000 units in the first quarter. This statement blurs the two
concepts. In this example, the plan is to produce 6,000 units, not the
forecast. The plan is what we are going to do whereas the forecast is a
prediction of what will happen.
Is it possible to influence the forecast? Of course it is. However, we need
to be clear on what is the forecastor predictionindependent of our
action. We need to separately understand the planwhich may in fact
include our influence. Without separating these we cannot understand
each of these variables and have an idea as to how we are performing.
Forecasts drive plans. Plans for the future are then made in response
to the forecast. This is shown in Figure 1.1.
Planning is the process of taking action in order to prepare for the
future. Planning requires organizing resources in anticipation of the forecast and being prepared for future events. Today organizations operate in
a global Internet-driven environment. They often need to respond in real
time and must decrease their vulnerability to chance. In order to do that
they need better forecasts and plan their resources accordingly.

Forecasting

Planning

Predicting the future

Preparing for the future

Figure 1.1 Forecasts drive plans

FORECASTING FUNDAMENTALS

Planning involves the following decisions.

1. Scheduling existing resource: For a business and its supply chain to be
competitive, it must use its current resources in the most efficient
way possible. This includes the current production process, transportation, labor, facilities, and capital. An important aspect of planning is deciding how to best utilize existing resources. Consider an
example such as the production of M&Ms, the well-known candies,
by Mars Inc. M&Ms come in standard colors, with the company
offering seasonal colors during holidays, such as Halloween or
Christmas. The production facility operates at capacity. This means
that producing candies in a new color means that other colors will
be temporarily eliminated or made in smaller quantities. For M&Ms
this is an important decision as customers have color preferences and
forecast of desirability and demand are critical to allocate resources
accordingly.
2. Determining future resource needs: In addition to efficiently utilizing
current resources, organization must determine what resources are
going to be needed in the future. These decisions depend on forecasts
of emerging market opportunities, new technology, new products,
and competition. Lets look at another chocolate example, in this
case the Hersheys corporation. The company has been investing in
sustainable processes and has changed its packaging to be biodegradable. The company has forecasted this to be an emerging opportunity
and changing processes accordingly. Its forecast is driving its plans.
3. Acquiring new resources: It takes time for companies to acquire new
facilities, new technologies, new equipment, or expand to new locations. Plans must be made well in advance, and procedures to acquire
new resources and capabilities put in place well ahead of time.
Companies often confuse forecasting and planning, but the difference
is very important. The reason is that companies have the ability to affect
demand and ultimately change their forecast. This can be done through
promotional campaigns and advertisements, offering incentives to sales
staff and personnel, and through cutting prices. This is called demand
management and is the process of attempting to modify demand.

Forecasting in Business 9

Forecasting

Planning

Predicting the future

Preparing for the future

Demand
management
Modifying the future

Figure 1.2 Forecasting, planning, and demand management

Notice that demand management cannot occur without first having a

forecasta prediction of what future demand is going to be. Once a forecast and a resulting plan have been made, the organization may decide
to influence demand in order to better utilize its resources, and the plan
reconfigured accordingly. This is shown in Figure 1.2.
Key Points
Forecasting is predicting the future.
Planning is preparing for the future.
Demand management is modifying the future.

Forecasting and Planning in Practice

To understand the interconnected relationship between forecasting and
planning, consider a situation faced by the World Health Organization
(WHO) and the Centre for Disease Control (CDC) a few years earlier.1
On January 29, 2010, the WHO declared that even though the H1N1
virus was still spreading, the number of confirmed cases worldwide was
finally on the decline. This was good news as the original forecasta viral
outbreak that had the potential for a global catastrophewas not met. In
hindsight, however, the WHO and the CDC had learned two important
lessons. First, forecasting the viral outbreak was much more difficult than
scientists originally thought. Second, the plans that had been put in place
as a response to the original forecast would have been utterly inadequate
had the forecast been correct. There was too little of the vaccine when the
virus was peaking, and too much when it started tapering off.

10

FORECASTING FUNDAMENTALS

Forecasting pandemics is difficult, yet forecasts must be made so

vaccine producers can decide how many units of vaccines to make. This
also involves forecasting by demographic groupssuch as the elderly,
pregnant women, and individuals with other health risks. Adding to the
complication is an estimate of the quantities needed by each group. For
example, in the early stages of H1N1 there was a belief that two vaccines
were needed for adults, a number that was later cut in half.
Directly related to the forecasting problem is the length of the vaccine production process. Flu vaccines are produced from viruses grown
in eggsa slow and labor-intensive processwhich is a significant bottleneck. One priority in matching supply and demand is to overhaul the
vaccine production system as a shorter production time would enable
quicker response to demand. The current technology, which involves
growing flu vaccines in eggs, is time consuming. Drug manufacturers
have to start production in February of the preceding year to ensure sufficient supply for the following fall. Another problem is the distribution
network of getting the vaccines to the right locations. Decisions such as
packaging, security, and shipping times are also issues for ensuring speed
and product safety. Today the CDC is continuing to improve these processes. However, forecasting and matching supply with demand remains
a challenge.
In addition to these examples, consider the planning required to
mobilize resources to an area of needsuch as the earthquake in Haiti
or those needed to support an event, such as the Olympics. These plans
are based on forecasts and they require decisions regarding how best to
manage resources in their respective supply chains. (For more information see www.forecastingprinciples.com)

Impact on the Organization

Plans at all levels of the organizationfrom the strategic level, where
long-range plans are made, to the tactical, where day-to-day scheduling
is madeare based on forecasting. Also, forecasting is the driver of every
organizational function. Marketing relies on forecasting to develop estimates of demand and future sales. Marketing also forecasts sizes of m
arkets,
new competition, future trends and emerging markets, and changes in

Forecasting in Business 11

consumer preferences. Finance, in turn, uses forecasting to assess financial

performance and capital investment needs, to predict stock prices and
investment portfolio returns, and set budgets. Operations makes decisions
regarding production and inventory levels, conducts capacity planning
and scheduling, all based upon a forecast. Sourcing uses forecasts to make
purchasing decisions and select suppliers. None of these organizational
functions could do their job without a forecast of the future. Whether in
business, industry, government, or in other fields such as medicine, engineering, and science, proper planning for the future starts with a forecast.

Impact Across Industries

Forecasting has a broad impact on planning well beyond the traditional
business environment. Forecasting is equally important in manufacturing
as well as service organizations, and across every industry sector. The only
difference is that the impact of forecast errors is often higher in service
environments due to a lack of inventories that are carried in manufacturing and can serve to buffer against uncertainty. However, the methodologies used to forecast are exactly the same. In fact the decision as
to which forecasting model to use is not specific to an industry or the
type of forecast being generated but other factors that we discuss later in
thechapter.
Next we look at some forecasting examples that go beyond the traditional business environment to illustrate its full importance:
1. Crime forecasting: Crime forecasting is an area of forecasting that
has gained quite a bit of interest. Consider that police departments
must forecast different types of crimes by location and as a result
schedule police officers, patrols, acquire resources, and provide
training.
2. Climate change: Numerous forecasting techniques are used to scientifically predict the effects of climate change. These forecasts impact
the plans that are made by policymakers, and how money and
resources are allocated to mitigate catastrophic risk. These forecasts
can have an enormous impact on preparedness in case these events
materialize (see www.PublicPolicyForecasting.com).

12

FORECASTING FUNDAMENTALS

3. Health forecasting: Health and health care forecasting is important for

policymakers and researchers. This involves projecting demographic
changes, health resources needed, future impact of disease, health
risk factor distributions, trends in population health, and health care
spending. These forecasts are used to make decisions regarding allocating resources and planning for future resources, such as training
of physicians and acquiring new capabilities (see www.forecastingprinciples.com/index.php/elections-page?id=22).
4. Political forecasting: Forecasting political elections has a huge impact
on business. Consider the resources required to run a political
campaign and the organizing of resources that must be immediately in place once an election is won. Also, a political forecastand
how favorable it is toward business and specific industry sectors
has a significant impact on current business decisions (see Political
Forecasting.com).
5. Forecasting decisions in conflicts: Forecasting decisions of parties in
conflict is concerned with forecasting industrial disputes, corporate
takeovers, intercommunal conflicts, political negotiations, diplomatic and military confrontations, and even counterterrorism. The
planning that is done based on these forecasts requires training and
mobilization of personnel, resources, and allocation of money. Consider, for example, the operational and supply chain requirements
that are involved when governments decide on increasing airports
security or security at ports of entry. (See www.ConflictForecasting.
com and www.TerrorismForecasting.com)
6. Tourism forecasting: This is a special area of forecasting concerned
with forecasting trends and growth patterns in tourism. Given that
large size of the hospitality industryhotels, cruises, resortsthis is
an important forecasting area. These forecasts translate into decisions
such as whether Marriot Hotels will open a new facility in Cairo or
how many cruise ships and staff size will be needed to travel the Adriatic Sea during May (see http://tourism.forecastingprinciples.com/).

Impact on the Supply Chain

The forecast of demand is critical not only for an individual business organization but also for the entire supply chain, as it affects all the plans

Forecasting in Business 13

made by each company in the chain. When members of the supply chain
make their forecasts independent of one another, they are only looking at
the demand of their immediate buyer not the final customer in the chain.
The consequence is a mismatch between supply and demand because
each member of the chain is working to fulfill a different level of demand.
Consider the forecasting and planning process of Dell and Intel, one
of Dells suppliers. Dell starts its planning process with a forecast of future
demand which is used to determine order quantities. At the same time,
Intel, who supplies Dell with microprocessors, needs to determine its production and inventory schedules. If Dell and Intel were to make their
forecasts independently of one another, their forecasts would differ and
Intel would not be supplying Dell with the exact quantities of microprocessors it needs. The best alternative is for Dell and Intel to collaborate. When there is collaboration between suppliers and manufacturers
in generating the forecast, all entities are responding to the same level of
demand.
Independent forecasting by members of the supply chain gives rise to
the bullwhip effect. The bullwhip effect refers to the increased volatility
in orders as they propagate through the supply chain. The bullwhip effect
occurs when each individual company in the supply chain forecasts its own
demand, plans its stocking levels, and makes its replenishment d
ecisions
independently of other companies in the chain. This creates volatility in
orders which makes forecasting more difficult, leads to increases in inventory throughout the supply chain, has a higher stock-out risk, and results
in inefficient use of working capital and production capacity.

Forecasting Challenges
Implementation of a good forecasting process and correctly using the
right technology is a challenge for most companies. Methodological
advancements, available technology, and information access have in many
instances elevated forecasting capability. In practice, however, forecasting
processes still heavily rely on human judgment, despite the availability
of sophisticated forecasting methods. Forecasts within the practice are
usually produced as a combination of statistical forecasts and managerial judgment, where an initial statistical forecast is adjusted based on
opinions. Often forecasts are made by the opinions of managers without

14

FORECASTING FUNDAMENTALS

using the available techniques. However, relying exclusively and blindly

on technology is also not a good idea.
Consider the example of Nike.2 The company continuously makes
forecasts of demand for its many products and, as a result, generates plans
regarding which products to produce and how much inventory to carry.
In June 2000, Nike made headlines after going live with a highly touted
i2 forecasting software package intended to solve their forecasting problems. Nine months later, its executives acknowledged that they would
be taking a major inventory write-off because the forecasting from the
automated system had been so inaccurate. In fact, the total cost to Nike
was estimated at $400 million as the forecasts themselves were way off.
Relying exclusively on the automated forecasts, Nike ended up ordering
$90 million worth of shoes that turned out to be very poor sellers. The
company also came up $80 million to $100 million short on popular
models, such as the Air Force One of which it did not have enough. Nike
has bounced back as an innovation leader. The lessons learned, however,
are the importance of forecasting, the cost of forecast errors, and the limitations of even the best demand forecasting software.
As we can see, forecasting is a challenge. Poor forecasts result in poor
planning and leave the company unprepared to meet future demands.
The consequences can be costly in terms of lost sales or excess inventory that cannot be sold. Therefore, understanding forecasting requires
understanding both statistical and judgmental methods, as well as their
combination and the use of technology and information to improve
performance.
In this book you will learn the fundamentals of forecasting. You will
have a foundation that will enable you to make the best forecasts possible.
So lets go ahead and get started.

Discussion Questions
1. What is forecasting? Why is it important to everyone? Why is it
important to business leaders?
2. Provide at least three examples of forecasts you have made over the
past week. Remember that this does not include a formal f orecasting
process but any predictions or estimates you have made in your personal life.

Forecasting in Business 15

3. Select one of the examples you provided and explain the planning
process you went through in order to prepare for the forecast you
made.
4. Provide examples of business forecasts. Explain the kind of plans the
business would need to respond to these forecasts.
5. Explain demand management. How does it impact the forecast and
planning process?
6. Provide an example from your life as a consumer where you
responded to demand management.
7. Give examples of forecasting outside of the business context. Explain
why these forecasts are important and what their planning process
would be.
8. Explain why companies in a supply should collaborate for forecasting. Does this provide benefits and why? Provide an example of
companies that engage in such collaboration.
9. What is the bullwhip effect and how can forecasting help?
10. What was the mistake that Nike made in the example provided? Why
was this important and how should companies use their forecasts?

Index
Accuracy, forecasting, 6, 19
measuring, 3147
monitoring, 25
Additive models, 79
Adjusting statistical forecasts, 6163
depends upon data type, 62
documenting, 62
limiting number of series, 63
monitoring, 62
only high volatile series, 63
only most important forecast, 63
structuring, 62
with domain knowledge, 61
with high degree of uncertainty, 61
with known environmental
changes, 62
Adjustments
outliers, 22
trading day, 22
Analytics, 9495
Average performance, 32
Benchmarking performance, 32
Big data, 9394
Black swan, 98
Brainware, 103
Bullwhip effect, 13
Business intelligence, 9697
Capability, 27
Causal models, 7879
linear regression, 8586
multiple regression, 8687
Centre for Disease Control (CDC), 9
Climate change, 11
Cloud computing, 96
Coefficient of variation (CV),
109111
Collaborative forecasting, 113115
collaborative planning, forecasting,
and replenishment (CPFR),
113114

sales and operations planning

(S&OP), 115
Collaborative Planning, Forecasting,
and Replenishment (CPFR),
100
Collaborative planning, forecasting,
and replenishment (CPFR),
113114
Computing power, 9596
Constant versus current price data,
22
Consumer behavior, 100101
Contextual information, 73
Correlation analysis, 99
Correlation coefficient, 86
Cost, software package, 27
CPFR. See Collaborative
Planning, Forecasting, and
Replenishment; Collaborative
planning, forecasting, and
replenishment
Crime forecasting, 11
Customer Intention Surveys, 112
Customer support, 27
Cycles, 23
Data
clean, 2122
forecasting with no, 111113
missing, 21
patterns, 2224
set, 3637
Defensible forecast
defined, 105
principles for generating, 106109
Degree of accuracy, 24
Degree of importance, 110
Dell, 13
Delphi method, 72
Demand management
defined, 89
Dependent variable, 85

124 Index

Digital trails, 94
Domain knowledge, 57, 7273
Executive opinion, 7071
Explanatory models, 7879
Exponential smoothing, 8283, 91
Facebook, 93
Finance, 11
Fit set, 35
Fit versus forecast accuracy, 3335
Forecast accuracy, 3147
fit versus, 3335
importance of, 32
out-of-sample evaluation, 35
steps in, 3638
deciding on fit and test period,
37
future forecast, 38
generate forecast for test period,
38
measuring future accuracy, 38
multiple forecast results in test
period, 38
statistically describing data set,
3637
Forecast error measure, 3847
comparing, 4647
interpreting, 4546
standard error measures, 3840
using, 4146
Forecastability, 32, 109, 110
Forecasting
accuracy in, 6, 19
challenges, 1314
collaborative, 113115
climate change, 11
crime, 11
decisions in conflicts, 12
defined, 34
drive plans, 7
error, 31
health, 12
impact
across industries, 1112
on organization, 1011
on supply chain, 1213
importance of, 46

memorable stories of, 108109

political, 12
practicing of, 105
principles of, 1825
process (see Forecasting process)
relationship between planning and,
910
segmentation to improve accuracy
in, 109111
technology in, 91103
tourism, 12
versus planning, 69
Forecasting methods
combining, 5661
criteria for, 57
judgmental methods of, 5761
judgmental, 51, 5253
statistical, 51, 5355
use in practice, 5556
Forecasting process, 1718
clean data, 2122
generating forecast, 25
issues in, 2021
managing, 105117
rules for managing, 115116
steps in, 2025
Forecasting software, 2627
factors to consider in, 27
Forecasting strategies, 19
Forecasting with no data, 111113
analogous or similar product,
112113
Customer Intention Surveys, 112
Global positioning system (GPS), 91
Goodness of fit, 33
Google, 93
Health forecasting, 12
Holt-Winters forecasting model, 84
Horizontal patterns, 23
Human biases, 6869
Independent variable, 85
In-sample data, 35
Industries, forecasting impact on,
1112
Industry relevance, 27

 Index 125

Intel, 13
Internet of Things (IoT), 94
Judgmental adjustment of quantitative
forecasts, 5860
Judgmental forecasting methods, 51,
5253
basics of, 6566
strengths and weakness, 6669
types of, 7072
Delphi method, 72
executive opinion, 7071
market research, 7172
use in practice, 6970
Judgmental input to model building,
6061
Level patterns, 23
Level time series models, 8083
exponential smoothing, 8283
mean, 8081
moving averages, 8182
Limited attention span, 68
Linear regression, 8586
Long-term forecasts, 5
M&Ms, 8
MAD. See Mean absolute deviation
MAPE. See Mean absolute percentage
error
Marketing, 10
Mars Inc., 8
Mean, 36, 8081
Mean absolute deviation (MAD), 39
Mean absolute percentage error
(MAPE), 41
Mean percentage error (MPE), 4041
Mean squared error (MSE), 3940
Missing data, 21
Moore, Gordon E., 96
Moores Law, 96
Moving averages, 8182
simple, 8182
weighted, 82
MPE. See Mean percentage error
MSE. See Mean squared error
Multiple layers of seasonality, 107
Multiple regression, 8687

Nave method, 45
National Oceanic and Atmospheric
Administration (NOAA),
98
Nike, 14
Occams Razor, 7576
Operations, 11
Optimism, 68
Organization, forecasting impact on,
1011
Out-of-sample evaluation, 35
Outliers (or special event)
adjustments, 22
Patterns, data, 2224
cycles, 23
level or horizontal, 23
random variation, 2324
seasonality, 23
trend, 23
PepsiCo Inc., 18
Planning
defined, 7
forecasting versus, 69
relationship between forecasting
and, 910
Point of sale (POS), 91
Political forecasting, 12
Political manipulation, 68
Predictive analytics, 9798
Principle of Parsimony,
7576
Qualitative forecasting methods,
6574
Radio frequency identification
(RFID), 91
Range, 36
Regression, 98
Relative error measures,
4041
Responsiveness, 76
S&OP. See Sales and operations
planning

126 Index

Sales and operations planning

(S&OP), 106, 115
Scalability, 27
Seasonality, 23, 107
Sentiment analysis, 101102
Short-term forecasts, 5
Short-term memory, 68
Simple moving averages, 8182
Soft information, 67
Sourcing, 11
Specialty software, spreadsheets versus,
26
Spreadsheets versus specialty software,
26
Stability, 76
Standard deviation, 36
Standard error measures, 3840
Statistical forecasting methods, 51,
5355, 7588
basics of, 7577
categories of, 7780
causal models, 7879
level time series models, 8083
seasonality-adjusted models, 84
time series models, 7778, 7980
trend-adjusted models, 8384
Supply chain, forecasting impact on, 13

Technology, forecasting, 91103

advancements, 91
analytics, 9495
big data, 9394
computing power, 9596
impact of, 9193, 96100
in business intelligence,
100103
consumer behavior, 100101
sentiment analysis, 101102
weather forecasting, 102103
Test set, 35
Time series models, 7778, 7980
level, 8083
Tourism forecasting, 12
Trading day adjustments, 22
Trend, 23
Trend-adjusted models, 8384
Wal-Mart, 93
Weather forecasting, 102103
Weighted moving average, 82
WHO. See World Health
Organization
Wishful thinking, 68
World Health Organization (WHO),
9