Forecasting

You can never plan the future by the past .. Edmund Bruke I know of no way of judging the future but by the past . Patrick Henry

 Your aim is to learn more about

different types of forecasting How are forecasts made Why? How reliable are they ?

 Key element in operations structure Uses data from past events to determine future events Apart from weather fore cast can you think of three other forecasts?

 Predict world population growth Car ownership and demand for roads Energy production and consumption

 How is forecast made ????

 Study previous trends Identify key variables e.g birth rate, death rate and migration Consider likely changes in these variables over time e.g. increasing levels of economic development may lead to higher rates of energy consumption

 Why is forecasting important ????

 Planning services e.g. schools, houses, jobs infrastructure, welfare Providing resources e.g. food, water, land energy Think about the consequences of a bad forecast for people, the environment

 Consider world population

What factors determine the world population ?
Birth rate Death rate

Population will increase if birth rate is greater than death rate

 World population growth

In 1500 the worlds population was 500m By 1800 it had slowly grown to 1 billion How long had it taken to double
300 years

If you had been a population forecaster in 1800 when would you have predicted that population would reach 2 billion ?
The year2100 Yet world population was 6 billion by 2000, a six fold increase

 What went wrong with the forecast ?????

 Was the model incorrect ?

No birth rate and death rate were the only relevant variables

Were previous trends bad indicator of the future ?

Death rate dropped very rapidly over the last 150 years due to better health care, nutrition and living conditions

 What do the experts forecast?

World population is currently growing at the rate 1.2% per annum or 77 million people per year By 2050 world population is forecast to be between 7.9 billion ( low variant) and10.9 billion (high variant), and a medium variant of 9.3 billion Some experts forecast that world population could reach 12 15 billion before leveling off

 Why do these forecast vary so much ????

 Regional growth rates differ

Africa is supposed to double its population by 2050
What may changer this forecast ?
Higher death rates e.g. AIDS

China and India currently compromise 30% of the worlds population

Which country is forecast to grow at the fastest rate by 2050
Both are under going rapid development and industrialization .

 So to take another example

How might the above effect fuel consumptions What are the variables too many to list but such things as
Availability of fuel resources Demand which does not depend only on size of population also economic development, geographical location and more Capital and technology Politics, trade , international agreements . More!!!

 What can be forecast with certainty ????

 Tides ? Solar and lunar eclipses ? Transits of Venus ?

 Never the less

Forecasting is critical to improving the competitive edge It enables a company to respond quickly and accurately to market change than would otherwise be possible

 How does forecasting relate to the management process of planning , organizing and controlling?

 If operations have been properly planned and organized control is easier and smoother .. These processes interrelate and overlap .. Forecasting reduces costs of adjusting operations in response to unexpected deviations by specifying future demand. Accurate forecasts increase operating efficiency

 Managers may want long run estimates of over all demand or short run estimates of demand for each individual products

 A forecast is an estimate of a future event achieved by systematically combining and casting forward in a predetermined way data about the past A prediction is an estimate of a future event achieved thru subjective consideration other than just past data. This subjective consideration need not occur in any predetermined way.

 For predicting good subjective estimates can be based on managers skill, experience and judgment Forecasting requires statistical and management science techniques Forecasts are necessary for planning, scheduling and controlling the system to facilitate effective and efficient output of goods and services

Information on most recent demand and production

Demand forecast for operations

Planning the system (designing) Product Process equipment investment Replacement Capacity planning

Scheduling the system Aggregate production planning Operation scheduling

Controlling the system Production inventory labor cost

Output of goods and services

 Characteristics of demand over time

 To systematically analyze data for forecasting a time series analysis is used it could be Constant Seasonal linear trend Or combination of the above Noise term used to define the data points that fall on the pattern (even if not exactly they cluster around the pattern) High noise many of the points lie far away from the pattern and low is the reverse

Seasonal (cyclical)

Linear trend

production demand

constant

time