FORECASTING

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Ankit Nayak
Vikram Singh Yadav
ankit nayak & vikram singh 7 May 2013

LECTURE OUTLINE
What is forecasting Need of forecasting Methods of forecasting How do we make mistake

ankit nayak & vikram singh

7 May 2013

What is forecasting ?
Forecasting is the art and science of predicting future events.
Forecasting Previous data Future data

ankit nayak & vikram singh

7 May 2013

Forecasting is the scientifically calculated guess. It is basic to all planning activity-- Whether it is national, regional, organisational, or functional planning; and Whether it is a long range plan or a short-range plan.

Predicting the Future.

ankit nayak & vikram singh

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Need of forecasting
It determines the volume of production and production rate. Form the basis for production budget, labour budget, material budget etc. Suggest the need for plant extension. Essential for product design and development. Helps deciding the extent of advertising, distribution etc.

ankit nayak & vikram singh

7 May 2013

Types of variation
linear Trend variation
Trend variation- along term upward or downward movement in sales volume or demand of products.

Demand

time
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Constant variation

Demand

Time
ankit nayak & vikram singh 7 May 2013

Seasonal variation
Short term regular variations related to calendar or time of a day.

Demand

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Cyclic variation
Wave like formation which last more than one year.

Demand

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Sessional pattern with growth

Demand

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Irregular variation
irregularity

Demand

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Classification of forecasting

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Type of forecasting methods

Qualitative
Opinion surveys Market trial Market research Delphi method

Quantitative
Time series
Past average

Moving average
Weighted moving average Exponential smoothing

Econometric or casual
Correlation Regression

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Past average
Forecast is equal to mean or average of sails for previous period.

example- Consumption of ice crme in tone.

year demand

2009 2010
2011 2012 2013

51 64
47 55 = 55
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Forecast for 2013= 51+64+47+55 4

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Moving average method (NUMERICAL)

Fore the given data generate forecast for each of the time period using simple moving average from n=3 period and for moving average n=4 period also find the forecast for 6, 7 and 8 period. Month Jan Feb March April May Demand 100 120 110 130 140

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Weighted moving average

Fore the giving data generate forecasting each of time period using weighted moving method (n=4).

Year 2001 2002 2003 2004 2005 2006

ankit nayak & vikram singh

Demand 49 57 66 54 61 ?
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Exponential smoothing method

The sale of car in a show room in 4 months is 70, 68, 82 and 95 respectively with smoothing cons. 0.4 find the forecast for next 2 month for car sale.

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Linear regression method

A company manufacturing T.V. sets, establish relation that it sales is related to population of the city the market research have following information. fit a linear regression eq. and estimate demand of T.V. set for a city with population of 50 million . Population (million) 5 7 15 22 27
ankit nayak & vikram singh

No. of T.V. set (thousand) 28 40 65 80 96 130

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The annual sails of a company are given below by the method of least square. Find the trend value for each of the 5 years also estimate the annual sails for the year 2007.

year
2002 2003 2004 2005 2006

Sails
50 65 75 52 72

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Forecast Error
Mean absolute deviation (MAD) Mean forecast error (MFE) Running sum forecast error (RSFE) Mean square error (MSE) Mean absolute percentage error (MAPE) Tracking signal (TS)

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Demand for a new car has been show below the expert forecast a sales of 100 car for the month of march with a smoothing constant of 0.15 find the forecast for Aug. also calculate MAD, MSE, MAPE and Bias. Month March April May June July Demand 150 200 100 50 150

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Reference
Production and operations management by S.N. Chary TMH publication Industrial engineering and management by O. P. Khanna Production and operations management by Chase, Aquilo and Jacobs TMH pub Web site http://nptel.iitm.ac.in/ Lecture - 34 Forecasting - YouTube.WEBM http://www.youtube.com/watch?v=DVEbZ__FNRg

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ankit nayak & vikram singh

7 May 2013