Académique Documents
Professionnel Documents
Culture Documents
Forecasting
McGraw-Hill/Irwin
OUTLINE
Introduction
Steps in forecasting process
Types of forecasting
Nave Forecasts
Averaging Forecasts
Linear Trend Forecasts
Associative Forecasts
Forecast Accuracy
3-2
Learning Objectives
Learning Objectives
FORECAST:
A statement about the future value of a
variable of interest such as demand.
Forecasting is used to make informed
decisions.
Long-range
Short-range
3-5
Forecasts
Forecasts affect decisions and activities
throughout an organization
Accounting, finance
Human resources
Marketing
MIS
Operations
Product/service design
3-6
Uses of Forecasts
Accounting
Cost/profit estimates
Finance
Human resources
Hiring/recruiting/training
Marketing
MIS
Operations
Product/service design
Features of Forecasts
Assumes causal system
past ==> future
Forecasts rarely perfect because of randomness
Forecasts more accurate for
groups vs. individuals
Forecast accuracy decreases
as time horizon increases
Reliable
n
i
n
a
e
M
ul
f
g
Accurate
Written
y
s
Ea
to
e
s
u
3-9
The forecast
Types of Forecasts
Judgmental: uses subjective inputs
Time series: uses historical data,
assuming the future will be like the
past
Associative models: uses explanatory
variables to predict the future
Judgmental Forecasts
Executive opinions
Sales force opinions
Consumer surveys
Outside opinion
Delphi method
Figure 3.1
Forecast Variations
Irregular
variation
Trend
Cycles
90
89
88
Seasonal variations
Naive Forecasts
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 periods actual value.
Naive Forecasts
Simple to use
Virtually no cost
Quick and easy to prepare
Data analysis is nonexistent
Easily understandable
Cannot provide high accuracy
Can be a standard for accuracy
F(t) = A(t-1)
Seasonal variations
F(t) = A(t-n)
Moving Averages
Moving average: A technique that averages a
number of recent actual values, updated as
new values become available.
Ft = MAn=
Ft = WMAn=
MA5
MA3
Ft = MAn=
Exponential Smoothing
Exponential Smoothing
Actual
1
2
3
4
5
6
7
8
9
10
11
12
42
41.8
41.92
41.73
41.66
41.39
41.85
42.07
42.36
41.92
41.73
42
41.2
41.92
41.15
41.09
40.25
42.55
43.13
43.88
41.53
40.92
-2
1.8
-1.92
-0.15
-2.09
5.75
1.45
1.87
-5.88
-1.53
Demand
50
.4
45
.1
40
35
1
Period
9 10 11 12
Parabolic
Exponential
Growth
Ft = a + bt
0 1 2 3 4 5
Calculating a and b
n (ty) - t y
b =
n t 2 - ( t) 2
y - b t
a =
n
t
1
4
9
16
25
t
= 55
y
S a le s
150
157
162
166
177
ty
150
314
486
664
885
y = 812
ty = 2 4 9 9
812 - 6.3(15)
a =
= 143.5
5
y = 143.5 + 6.3t
Seasonal relative
Associative Forecasting
Predictor variables: used to predict values
of variable interest
Regression: technique for fitting a line to a
set of points
Least squares line: minimizes sum of
squared deviations around the line
Y
15
10
13
15
25
27
24
20
27
44
34
17
Computed
relationship
50
40
30
20
10
0
0
10
15
20
25
Forecast Accuracy
Error: difference between actual value and
predicted value
Mean Absolute Deviation (MAD)
Actual
forecast
n
MSE
( Actual
forecast)
n -1
MAPE =
Actual
forecas
t
n
/ Actual*100)
Easy to compute
Weights errors linearly
MSE
Squares error
More weight to large errors
MAPE
Example 10
Period
1
2
3
4
5
6
7
8
MAD=
MSE=
MAPE=
Actual
217
213
216
210
213
219
216
212
2.75
10.86
1.28
Forecast
215
216
215
214
211
214
217
216
(A-F)
2
-3
1
-4
2
5
-1
-4
-2
|A-F|
2
3
1
4
2
5
1
4
22
(A-F)^2
4
9
1
16
4
25
1
16
76
(|A-F|/Actual)*100
0.92
1.41
0.46
1.90
0.94
2.28
0.46
1.89
10.26