Business Projection Technique PDF

1 | Business Forecast
TECHNICAL BUSINESS PROJECTIONS

Accurate Practice To Indicate The Level of Uncertainty In An Estimate And Predict
Boyke Hatman
2019
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CHAPTER I
PRELIMINARY
A. Background
Risk Anticipation Review and uncertainty are the core of estimates

and predictions; it is generally considered good practice to indicate
the level of uncertainty inherent in an estimate. In any case, the data
must be updated so that the forecast is as accurate as possible. In
some cases, the data used to predict the desired variable is predicted.
With the rapid and rapid development of science and technology,
especially data collection technology, it requires to be able to prepare
human resources who have the ability and quality to be able to keep
up with the progress. In this era of globalization, computers are
indispensable tools and are used in all fields that can solve work or
complex problems quickly, precisely, effectively, and efficiently,
including data processing.
Forecasting is the initial part of a decision making process and the

process of making predictions of the future based on past and present
data and most commonly by analysis of trends. A commonplace
example might be estimation of some variable of interest at some
specified future date. Prediction is a similar, but more general term.
Both might refer to formal statistical methods employing time series,
cross-sectional or longitudinal data, or alternatively to less formal
judgmental methods. Usage can differ between areas of application.
Risk and uncertainty are central to forecasting and prediction; it is
generally considered good practice to indicate the degree of
uncertainty attaching to forecasts. In any case, the data must be up to
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date in order for the forecast to be as accurate as possible. In some

cases the data used to predict the variable of interest is itself
forecasted.Before making a forecast, it must be known in advance
what exactly is the problem in making that decision. The development
of more sophisticated forecasting techniques along with advances in
computers, especially in the development of personal computers and
software, has made forecasting receive more attention. Every
manager now has the ability to use very sophisticated data analysis
techniques for forecasting and understanding these techniques are
now important for business managers. For the same reason,
forecasters must be alert to the inaccuracy in using forecasting
techniques because the inaccuracy of predictions will result in bad
decisions.
However, good data processing does not guarantee a company

can lead to success as expected by each company, so to achieve
business success, it needs a mature design, and there are special
techniques in seeing the level of business in the future, therefore we
can see that, in managing a business forecasting is needed through
existing data. New forecasting techniques continue to be developed
as managers care about the forecasting process that continues to
develop. The particular focus of attention is on the errors that are part
of each forecasting procedure. Predictions about future events are
rarely accurate, forecasters can only try to make the smallest possible
inevitable mistakes.
Projections or Business Forecasting are Busy, business for profit,

entrepreneurship Forecasting can be used in: Sales and Investment.
Business Projection Technique is a way / approach u determine
forecast (forecast) about something in the future. Business
Forecasting becomes very important because the preparation of a
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plan is targeted at a projection / forecast. To reduce risks and

uncertainties in the future, management needs to make projections,
especially forecasts for product / service sales
B. Impact of Forecasting on Business
The method used is very beneficial, if it is associated with the

information or data that is owned. If from the past data it is known that
there is a seasonal pattern, for forecasting one year in the future the
method of seasonal variation should be used. Whereas if from the
past data it is known that there is a pattern of relationships between
the variables that influence each other, then it is better to use the
causal method or correlation (cross section).
As we know that the method is a mathematical and pragmatic

way of thinking about solving a problem. With this basis, the
forecasting method is a way of estimating what will happen in the
future systematically and pragmatically; so that the forecasting
method is very useful to be able to estimate systematically and
pragmatically on the basis of relevant data in the past, thus the
forecasting method is expected to provide greater objectivity to the
business.
Besides that, the method of forecasting also provides a

sequence of workings and solutions to the approach of a problem in
forecasting, so that if the same approach to the problem in a
forecasting activity is used, then the same rationale and solution will
be obtained, because the arguments are the same. With the use of
techniques
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it is expected to provide a greater level of trust and confidence,

because it can be tested and proven deviations or deviations that
occur scientifically.
From this description, it can be concluded that the forecasting

method is very useful for the business or business that is being
carried out because it will help in carrying out an analysis approach to
the behavior or pattern of past data so that it can provide a way of
thinking, working and solving systematic, as well as providing a level
of confidence greater for the accuracy of the results of predictions
made, or arranged. In addition, with this forecasting we can find out
how the face or condition of the business that we are doing now, even
we can also know the direction and purpose and actions that must be
taken for the future
Forecasting activities, also called projections or predictions, are

carried out by almost everyone, be it business people, government
officials, or lay people. Predicted topics are very varied, from just a
ball match score, the level of rain in an area, the winner of an election
activity , until the level of inflation or economic growth that has wide
impact.
One of the fields that mostly applies forecasting or projection is

the business world. This can be understood, because a company
generally exists in a dynamic and often changing business
environment.
What exactly is the important role of forecasting or projection

activities in the business world or non-profit organizations? Why do
companies need to do forecasting or projection before taking a
strategic action? Forecasting or projection can help a person or group
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of people in making decisions, whether it is strategic and influential in

the long term, or the decision is tactical and short-term.
C. Meaning of Projection / Forecasting
The definition of forecasting or projection itself actually varies. Here

are some definitions of forecasting or projection:
- Estimated emergence of an event in the future, based on existing

data in the lighting.
- The process of analyzing historical data and current data, to

determine future trends.
- The estimation process in an unknown situation.
- Statements made about the future.
- Use of science and technology to predict future situations
- Systematic efforts to anticipate events or conditions in the future

filled with uncertainty.
From some of the definitions above, it can be concluded that

forecasting or projection is related to efforts to predict what will
happen in the future, based on scientific methods (science and
technology) and carried out systematically. However, forecasting
activities are not solely based on scientific or organized procedures,
because there are forecasting activities that use intuition (feelings) or
through informal discussion in a group.
Forecasting or projection is an activity that is organized, trying to

predict the future using not only scientific methods, but also consider
things that are qualitative, such as feelings; experience; and others.
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D. Business Projection Function
1. For Investors
To find out whether the reinvested capital is in accordance with

the expected return or not.
Here, investors must analyze historical data on the company

and the factors that influence the success or failure of the
company
2. For Company Managers
As a basis for developing the strategies needed for competition

or leaving competition
3. For Creditors
To find out whether loans can be returned on time in

accordance with the agreed interest rate or not ?. Here,
creditors can make the decision whether to give loans or not?
4. For Employees
To project his career path in the future. Here, an employee can

decide whether to continue working at his current company or
need to find another company that is more prospective?
5. For the Government
To formulate broader public policy interests. For example, it is

projected that transport companies will grow by an average of
5% over the next 5 years. This means that the government
must provide appropriate transportation facilities, such as
roads, terminals and legal instruments
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E. Purpose of Projection
Forecasting purposes based on time available include:
1. Short term (Short Term)
Determine the quantity and time of items made into

production. Usually, it is daily or weekly and is determined
by Low Management.
2. Medium Term (Medium Term)
Determine the quantity and time of production capacity.

Usually, it is monthly or quarterly and is determined by
Middle Management.
3. Long Term (Long Term)
Plan the quantity and time of production facilities. Usually,

it is annual, 5 years, 10 years, or 20 years and is
determined by Top Management.
F. Benefits of Business Projection
Forecasting: is the art and science of predicting events that will

occur using historical data and projecting it into the future with some
form of mathematical model.
Forecasting (forecasting) is very important in the fields of

business and economics. There are 2 basic things. First, the planning
(planner) and also the decision maker (decision maker) must make a
plan or take a decision at this time to carry out the future. Second,
conditions in the future are difficult to ascertain at this time. In other
words, in the future there is an element of uncertainty.
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Who needs divination? Every organization, whether a large

organization or a small organization, whether a profit-oriented
business organization (profit oriented organizations), or non-profit
oriented organizations (nonprofit oriented organizations) generally use
predictions, both explicitly and implicitly. This is because every
organization must plan what it will do in the future. A company is
making a current budget for future use. The main problem faced by an
organization in making a budget is the uncertainty about events
(conditions encountered) in the future.
Forecasting (forecasting) is very important in the fields of

business and economics. There are 2 basic things.
• First, the planning (planner) and also the decision maker

(decision maker) must make a plan or take a decision at this time to
carry out the future.
• Second, conditions in the future are difficult to ascertain at this

time. In other words, in the future there is an element of uncertainty.
Who needs divination? Every organization, whether a large

organization or a small organization, whether a profit-oriented
business organization (profit oriented organizations), or organizations
that are not profit-oriented (nonprofit oriented organizations) generally
use predictions, both explicitly and implicitly. This is because every
organization must plan what it will do in the future.
A company is making a current budget for future use. The main

problem faced by an organization in making a budget is the
uncertainty about events (conditions encountered) in the future. The
following questions can be used to better understand the importance
of making predictions for an organization:• Jika suatu perusahaan
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menambah pengeluaran untuk iklan, bagaimana pengaruhnya

terhadap penjualan?
• If the government raises the income tax rate by 5%, how much
can the government's revenue be increased?
• The central bank reduces interest rates on Bank Certificates.

How does it affect inflation?
• What factors influence (determine) sales?
• How will the development of national production (GDP) in the

next 5 years?
• Is the current economic condition experiencing a recession? If

so, when will the recession begin? How severe is the recession
that has hit the economy today? When does this recession
end?
• What are the employee's needs for the next 5 years.
The questions above add to the understanding that

organizations, both business and non-business (government) need
forecasts. Why? Because what will be known is the condition in the
future, while currently there is no information available about what will
happen in the future.
Business organizations (companies) in 2016 make a revenue

and cost budget that will be implemented in 2017. The business
organization does not have enough information to ascertain events
that will occur in 2017. Therefore, the company must make estimates
of events in 2017 which will affect the planning that is made.
Companies must make estimates of sales and prices for goods in
2017 to determine revenue in 2017. The company makes estimates of
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prices of raw materials, factory overhead costs, direct labor costs, and
other costs to determine costs in 2017. Revenues and costs in 2017
made by the company in 2016, of course, is an estimate. Because,
the quantities used to determine revenue and costs are derived from
the estimated results.
Another example is the budget made by non-profit

organizations (government). The government makes a state budget
for income and expenditure that will be implemented in the coming
year. In making the budget, the government makes estimates
(referred to in the term as 'assumption') about the size of
macroeconomic variables that will affect the amount of government
revenue and expenditure in the year concerned. For example, the
government will prepare a State Budget for 2017. The 2017 is
prepared in 2016. The government needs to make estimates about
the magnitude of macroeconomic variables in 2017, such as
economic growth, inflation rates, the exchange rate of the rupiah
against US dollars, central interest rates, world crude oil prices, and n
oil production. The magnitude of this macroeconomic variable will
affect the amount of government revenue and expenditure in the fiscal
year. The accuracy of the estimated revenue and expenditure budget
made by the government is very dependent on the accuracy of the
assumptions used to prepare the budget.
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CHAPTER II
FORECASTING METHOD
For forecasting, certain methods are needed and which method to

use depends on the data and information to be predicted and the
objectives to be achieved.
A. Projections according to Duration and Operational

Plan
In practice there are various forecasting methods including:
a. Forecasting based on time period:
1. Short-term forecasting (less than one year, generally less

than three months: used for purchasing plans, work scheduling,
number of TK, production level),
2. Medium-term forecasting (three months to three years: used

for sales planning, production planning and budgeting and
analyzing various operations plans),
3. Long-term forecasting (three years or more, used to plan new

products, capital budgeting, location of facilities, or expansion
and research and development).
b. Forecasting based on operating plans
1. Economic forecasts: discuss the business cycle by predicting

inflation rates and other planning indicators,
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2. Technology forecasts: related to the level of technological

progress and new products,
3. Demand forecast: related to the projected demand for

company products. This forecast is also called a sales forecast,
which directs the production, capacity and scheduling of
company scheduling.
B. Forecasting Based on Quantitative and Qualitative

Methods
Forecasting based on method / approach:
1. Quantitative forecasting, using various mathematical models

or statistical methods and historical data and or causal
variables to predict demand.
2. Qualitative forecasting, using intuition, personal experience

and based on the opinion (judment) of the forecasters.
1. Quantitative Method
Quantitative Forecasting Methods can be grouped into two

types, namely:
1. Time series model / time series method
the method used to analyze a series of data which is a function

of time
a. Moving averages,
• Simple moving averages: useful if it is assumed that market

demand remains stable:
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• Weighted moving averages: if there are patterns or trends that

can be detected, the scales can be used to place more
pressure on new values.
b. Exponential smoothing
Exponential Refinement: forecasting method by adding alpha

parameters in the model to reduce the multiplication factor. The
term exponential in this method is derived from the weighting /
weighting factor (smoothing factor from previous periods in the
form of exponentials).
c. Trend projection
Trend projection method with regression, is a method used both

for the short and long term. This method is a trend line for
mathematical equations.
2. The causal model / method (causal / explanatory model),

assumes the predicted variable shows a causal relationship
with one or several independent variables.
2. Causal / Explanatory Model
Is a forecasting method based on the relationship between

predicted variables and other variables that affect it but not time. In
practice this type of forecasting method consists of :
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1. Regression and correlation methods
Regression and correlation methods which are the methods

used for both the long and short term and are based on equations
with the least squares technique that is analyzed statically.
The use of this method is based on existing variables and will affect
the results of forecasting.
Things that need to be known before forecasting using the

regression method are knowing in advance knowing conditions such
as: 1. The existence of past information
2. Existing information can be made in the form (quantified)
3. It is assumed that existing data patterns from past data will

be sustainable in the future.
To explain the relationship between these two methods we use

mathematical notation like:
Y = F (x)
Y = Dependent variable (variable sought)
X = Independent variable (the variable that affects it)
Simple regression notation using linear regression

(straight line) can be used as follows:
Y=a+bx
a and b are parameters that must be sought. To find the

value of a, you can use the formula:
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a = (Σy) (Σx²) – (Σx) (Σxy)

. n(Σx²) – (Σx)²
b = n(Σxy) – (Σx) (Σy)

n(Σx²) – (Σx)²
Forecasting using the regression method:
The data available in the field are:
1. Seasonal
2. Horizontal (Stationary)
3. Cycle (Cylical)
4. Trend
There are two approaches for forecasting using time series analysis
with a simple regression method, namely:
1. Time series analysis for simple linear regression
2. Series analysis for simple non-linear regression
Model
1. Input Output Model, a method used for long-term forecasting

that is commonly used to develop long-term economic trends.
2. Econometrics model, is a forecast that is used for the long

term and short term.
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2. Qualitative Method
Qualitative methods are generally subjective, influenced by

one's intuition, emotions, education and experience. Therefore the
results of forecasting from one person to another can be different.
However, qualitative forecasting can use forecasting techniques /
methods, namely:
1. Jury of Executive Opinion: this method takes the opinions

or opinions of a small group of top managers / top managers
(marketing, production, engineering, finance and logistics),
which are often combined with statistical models.
2. Combined Sales Force : each salesperson predicts the

level of sales in his area, which is then combined at the
provincial and national level to achieve a comprehensive
forecast.
3. Delphi Method : in this method a series of questionnaires is

distributed to respondents, the answers are then summarized
and given to experts to be made forecast. The method is time
consuming and involves many parties, namely the staff, who
make a questionnaire, send, summarize the results for use by
experts in analyzing them. The advantage of this method is that
the results are more accurate and more professional so that the
forecasting results are expected to be close to actual.
4. Market survey : Input obtained from consumers or potential

consumers of the planned purchase in the observed period.
The survey can be carried out by questionnaire, telephone, or
direct interview.
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C. Other Forecasting Methods
1. Method Market Experiment
That is a way to make demand forecasting by conducting trials

on certain market segments or parts. The trial is conducted by
giving certain treatment to the factors that influence demand.
This method is usually used for new products or products that
are experiencing innovation or development.
2. Metode Peramalan Dengan Pendekatan Marketing Research
In forecasting consumer demand, various methods can be used

primarily with a marketing research approach (Marketing
Research) because the marketing department is directly related
to consumers. Forecasting method that is often used is the
customer survey is a method used to determine the attitudes
and perceptions of consumers or customers by interviewing
consumers directly or giving questionnaires that have been
prepared. Usually also included telephone number or address
on a product so that consumers can freely submit suggestions
or criticism.
In managing a company, there are so many things that must be

considered. One of them is predicting what will happen in the future.
At present, we must be prepared to face the ASEAN Economic
Community (MEA), which is an agreement among ASEAN members
for free trade. Lots of parties have influence on this MEA. How is the
forecast in the future? No one will know how to forecast in the future,
but companies need to know how to forecast so the company already
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understands the risks that will be faced and has prepared ways to
deal with it.
Before we step into forecasting, there are several types of

future including:
1. Potential Future, is a future situation that might occur.
2. Plausible Future, is a future situation based on assumptions

that will occur if the policy is not intervened.
3. Normative Future, is a future situation that should occur.
In making forecasting, we must understand the future situations

that affect our business. This future situation can be influenced by
internal policies, as well as external policies. If internally, the employer
can still control it and can be referred to as a potential future. But if it
is externally, then we can assume it as a plausible future.
After we know several types of future situations that will occur,

in making predictions, there are several methods that can be used,
namely:
1. Extrapolative Methods
Forecasting using past and present data. Usually in time series.

Usually for projections of economic growth, population, energy
consumption, workload. This method is based on assumptions:
persistence (continuing past and future), regularity (recurring
trends), and data reliability and validity.
2. Theoretical Forecasting
Assumptions are based on cause and effect contained in

various theories.
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3. Experienced Opinion
Forecasting future conditions by censoring the opinions of

experts.
In forecasting, these three methods can be combined so as to

produce predictions that are not much different from the reality that
will occur. The following are examples of business growth forecasts in
2016 from several fields:
1. Property Sector
Developers will be confronted at the lowest point of the

property market in 2015. Besides being caused by the
emergence of several government policies that burden
entrepreneurs, high interest rates also make consumers
reluctant to buy property in 2015. With the MEA, there
are several opportunities that can be exploited by
business developers, including by making apartments for
expatriates who will work and also many office areas
needed by many companies, especially foreign
companies that open offices. Many predict that the
property sector that will develop is the middle class
because in the middle class segment is imagined with a
fairly burdensome tax set by the government.
2. Economics
In 2016, the government predicts economic growth to be

at 5.3%. The US economy is predicted to recover and
grow high and the European economy will begin to
recover. However, what must be watched out for next
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year is the condition of China which is predicted to

experience a slowdown from 6.8% to 6.3%. This will also
affect the economy because in terms of exports and
imports have a very strong relationship. Other
government predictions are: 3-5 percent inflation rate, 3-
month SPN interest rate 4-6 percent, IDR 12,700-IDR
13,100 / US dollar, crude oil price 60-80 US dollars per
barrel, 'lifting '830-850 thousand barrels of oil per day,
and gas' lifting' from 1.1 to 1.2 million barrels of oil
equivalent per day.
From the property field, we can see that this forecast can
be called theoretical forecasting. This forecast in the
property sector places more emphasis on the causes and
effects that will occur in the property sector so as to be
able to get an assumption that in 2016 there will be
opportunities for development, but there are some
limitations due to regulations caused by government
regulations.
From the economic field, this forecast is seen that these

forecast combines the three existing forecasting methods. With
explorative methods, we collect data-
Quantitative data community that existed in the previous period

as material for our evaluation. After that, look at the causal
relationship to things that can affect changes in existing data in
the previous period. All of this is combined with forecasting
opinions, where experts very much talk about the state of the
economy in the future.
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After forecasting things to come, the company can analyze the

risks that may arise from the situation in the future. This risk is
analyzed and then sought how to minimize the risk that will
occur. It is difficult to predict what will happen in the future, but
this is quite useful for companies to be able to prepare for the
worst possible.
Business Projection Techniques are a method or

approach to determine predictions (forecasts) about something
in the future. Projections (forecast) becomes very important
because the preparation of a plan is based on a projection or
forecast. In addition, forecasting also aims to make forecasts
that can minimize the influence of uncertainty on the company
or minimize forecast errors which are usually measured by
Mean Square Error (MSE), Mean Absolute Error (MAE).
Menurut J. SuprantoTeknik proyeksi bisnis adalah suatu cara
atau teknik yang dipakai dalam bisnis untuk meramalkan
keadaan bisnis pada masa yang mendatang.
According to Sukanto Reksohadiprodjo Business

Projection Technique is a way to translate all the uncertainties
and risks that occur in the future into things that are easier to
move, control and look for alternative solutions to problems.
According to J. Stoner, business projection techniques are

the art or science of estimating future business.
So it can be concluded based on the opinion of experts

that Business Projection Tenik is a study of how business is
lived and predicts or predicts how business is lived in the future
and calculates the risks that will be faced and how to overcome
them.
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CHAPTER III
FORECASTING PROCEDURES
Forecasting procedures can also be grouped according to their

quantitative or qualitative nature. On the one hand, pure qualitative
techniques do not require data manipulation, only personal opinions
are used by the forecaster. On the other hand, pure quantitative
techniques do not require input of personal opinion, this is a
mechanical procedure that produces quantitative results. Some
quantitative procedures require more sophisticated data manipulation
than others. However, it is emphasized that personal opinion and
common sense must be used together with mechanical procedures
and data manipulation. Only in scientific ways can intelligent
prediction occur.
Formal forecasting procedures use past experience to

determine future events. The assumption used is that what happened
in the past will happen again in the future, with the same or similar
pattern. To get a picture of conditions in the past and then use them to
find out (predict) conditions in the future, it takes 5 steps.
A. Collecting Data
The initial step of the forecasting process is gathering the

complete data that is needed. This stage is relatively difficult, because
the data collected must be accurate and in sufficient quantities to
make predictions. Too little data will make it difficult for us to obtain
the pattern of change
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B. Reducing Data
The data collected can be filtered to obtain relevant data. Often

the data collected there are data that are not relevant to the problem
at hand. For example, we want to make predictions about sales. Sales
data in the period of a natural disaster need not be entered (must be
reduced / not used), because the sales data only reflect sales in the
event of a natural disaster and do not reflect sales in normal
conditions.
C. Building and Evaluating Models
The data that has been collected must be adjusted to the

forecast model used, so that errors in forecasting can be minimized. A
model that is simpler and will provide better forecasting results is
preferred by forecast users (planners and decision makers).
D. Perform forecasting / projection
Forecasting models that are selected after being matched with data
collected and have been reduced (if necessary), will be continued by
making forecasts using the forecasting model. Sometimes historical
data is needed to find out the magnitude of forecast errors using the
model, namely by entering the value of historical data in a period into
the forecast model to obtain the forecast value for that period. The
aim is to find out the accuracy of the forecast.
E. Evaluate Forecast
After completing the forecasting model, the next is to make the

forecast data values in the next few periods and then compare them
with the data in the previous period. The difference between the
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forecast data value and the actual data value is the error of the
forecast. The smaller the forecast error, the better the forecasting
model produced. The magnitude of forecasting error can be
expressed in several units, for example using average forecast error
or using sum of square errors.
F. Stages of the Quantitative Method
In making forecasting consists of several stages, especially if using

quantitative methods. These stages are:
1. Defining Forecasting Objectives
For example forecasting can be used during pre-production to

measure the level of a request.
2. Create a scatter diagram (data plot)
For example, plotting demand versus time, where demand is the

ordinate (Y) and time as the axis (X).
3. Choosing the right forecasting model
Judging from the tendency of the data in the scatter diagram, several
forecasting models can be chosen which are expected to represent
the pattern.
4. Calculating forecast errors (forecast error)
The accuracy of a forecasting model depends on how close the

forecasting value is to the actual data value. The difference or
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difference between the actual value and the forecast value is referred
to as "forecast error" or the deviation stated in:
et = Y(t) – Y’(t)
Y(t) = Actual data values in period t
Y’(t) = Value of forecasting results in period t
t = Forecasting period
Then obtained the abbreviated Number of Forecasting

Error abbreviated SSE (Sum of Squared Errors) and
Estimasi Standar Error (SEE – Standard Error
Estimated)
SSE = S e(t)2 = S[Y(t)-Y’(t)]2
1. Choosing the Forecasting Method with the smallest error.
If the error value does not differ significantly at a certain level of

accuracy (F statistical test), then arbitrarily choose these methods.
2. Verify
To evaluate whether the data patterns using the forecasting method

match the actual data patterns.
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G. Forecasting Accuracy
The forecast error (also known as a residual) is the difference

between the actual value and the forecast value for the corresponding
period :
where E is the forecast error at period t, Y is the actual value at

period t, and F is the forecast for period t.
A good forecasting method will yield residuals that

are uncorrelated. If there are correlations between residual
values, then there is information left in the residuals which
should be used in computing forecasts. This can be
accomplished by computing the expected value of a residual as
a function of the known past residuals, and adjusting the
forecast by the amount by which this expected value differs
from zero.
A good forecasting method will also have zero mean. If the

residuals have a mean other than zero, then the forecasts are
biased and can be improved by adjusting the forecasting
technique by an additive constant that equals the mean of the
unadjusted residuals.
Measures of aggregate error:
Scaled Errors: The forecast error, E, is on the same scale as the

data, as such, these accuracy measures are scale-dependent and
cannot be used to make comparisons between series on different
scales.
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Mean absolute error (MAE) or mean absolute

deviation (MAD)
Mean squared error (MSE) or mean squared prediction

error (MSPE)
Root mean squared error (RMSE)
Average of Errors (E)
Percentage Errors: These are more frequently used to compare

forecast performance between different data sets because they are
scale-independent. However, they have the disadvantage of being
extremely large or undefined if Y is close to or equal to zero.
Mean Absolute Percentage Error (MAPE) or

Mean Absolute Percentage Deviation (MAPD)
Scaled Errors: Hyndman and Koehler (2006) proposed using scaled

errors as an alternative to percentage errors.
Mean absolute scaled error (MASE)
m=seasonal period of 1 if non-easonal
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Other Measures:
Forecast skill (SS)
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CHAPTER IV
MEASUREMENT AND REQUEST

FORMING METHODS
Forecasting approach Forecasting procedures Obstacles to selection

of forecasting techniques Measurement of product demand
Forecasting of demand for established products.
A. Quantitative Forecasting Approach
1. Time series is a model that does not pay attention to cause

and effect relationships. Forecasting results only pay
attention to trends from past available data. Historical data
are needed in large numbers. The level of accuracy of
forecast results is low, because past conditions are often
not the same as the conditions in the future.
2. Explanatory Method is an approach that pays attention to

causality or approaches that explain the occurrence of a
situation. This method also does not guarantee that all
cause / explanation variables can be summarized as a
whole. In this model, it is expected to have a higher level of
accuracy and be valid for the long term.
3. Forecasting procedures Economic analysis (macro

aspect projection) population, income, and government
policies Industrial analysis; analysis of market demand
from all companies that produce similar products Past
sales analysis: to see ‘market positioning’, market share ’A
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forecasting of project and industry demand Forecasting of

forecasting results: efforts to minimize forecasting errors
from various forecasting techniques
B. Obstacles to the Selection of Forecasting Techniques
The time to be estimated / predicted. In general, qualitative

forecasting has a longer forecasting range than quantitative
forecasting. The predicted time period is minimal during the life
of the project. Data behavior, including the amount, accuracy
and behavior of past available data. Whether the behavior of
the data shows the relationship of linear equations, quadratic or
logarithmic, etc. which will influence the choice of forecasting
techniques.
C. Cost
available for forecasting and more broadly is the cost of

conducting a feasibility study. The level of accuracy / accuracy
desired. This is all from management at the level of accuracy,
accuracy of forecasting desired.
D. Product Demand Measurement
Use of import data for the product (if the product to be produced
by the project is an import constitution) Use of import, export
and domestic production data, if the product to be produced has
already been produced at DN and has also been exported. PE
= P + (I-E) + CPE: effective demand sought P: domestic
production during the relevant period: imports carried out E:
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exports carried C: amount of change in product reserves, ie the

difference between initial and ending inventory of the project
Chain ratio method, which is a method that calculates effective

demand by dividing into smaller components of a sequence
chain of variables that affect product demand. Example:
Request for internet = total population x% per capita income
consumed x% average spent on communication and
information x% average income for internet subscription
E. Forecasting For Products That Have Been Established
Established products: These are products that have been

produced by investors. Projects are expansion plans.
Consumers have recognized the products. Historical data can
be obtained by opinion methods, test / experiment methods,
survey methods, time series methods, correlation regression
methods, input-output methods.
F. Forecasting Methods For New Products
It is a product that is really new or product development

Forecasting methods are tests / experiments, and survey
methods
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CHAPTER V
DATA IN BUSINESS PROJECTIONS
A. Criteria for Useful Data and Types of Forecasting Data
Four useful data criteria include:
1. Data should be reliable and accurate. Appropriate handling must

be carried out on data collected from reliable sources with due
regard to its accuracy.
2. Data should be relevant. Data must represent the state in which

they are used.
3. Data should be consistent. When data relating to the definition

changes, adjustments need to be made to maintain the
consistency of historical patterns. This can be a problem, for
example, when government officials change the composition of
the mix or ("basketball market") used in calculating the cost of
living index. Thirty years ago PC computers were not part of the
product mix purchased by consumers.
4. Data should be on time. Data collected, summarized, and

published based on the timeliness will provide the highest value
for the forecaster. It could be too little data (not enough
historical data on which to base future events) or too much data
(data from irrelevant historical periods).
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B. Data According to Measurement Scale

1. Nominal Data
Data used to provide names or categories only. Mutually
exclusive (mutually exclusive)
2. Ordinal Data
The data can already be used to indicate the ranking between
levels, but the distance between levels is not clear
3. Data Intervals
Is data that can be used to rank between levels and distance
between levels that are clear. But this scale does not yet have an
absolute zero. Where the value of absolute zero indicates a state
of absolutely no or empty
4. Ratio Data
Is data that can be used to express levels of inter-level.
• The distance between levels is fixed. It has an absolute
value of 0.
• Therefore, this scale can be used to measure
C. Data According to the Time of Collecting it

1. Cross Section Data
Data about several objects that are collected at one particular
time.
Example: sales, promotion and price data presented in one table,
to find out the relationship
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2. Time Series Data

Data collected from time to time on an object to describe
the situation.
Example: advertising on TV every year for ten (10) years
D. Data According to the Pattern
1. Stationary Data
Time series data that has a relative average value over time.
This is because the factors that influence these variables have

not changed so that they do not affect the changes in these
variables.
Example: sales data
E. Data According to trends
Data in the projection period shows a certain pattern of growth or

decline.
• If the data shows growth, it can be said to be a positive trend.

Conversely, if it shows a decline, it can be said to be a negative
trend.
• Example: the 5-year sales data besides this shows a positive

trend
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F. Data by Season
Time series data that has a pattern of change that repeats

annually.
• If in month x sales experience an increase then the same

month in the previous year or the year to come will experience
the same thing
G. Data According to Cycle
Time series data that has fluctuations around trend lines and
will repeat within cycle periods for example every two years,
three years, four years and so on.
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CHAPTER VI
TYPES OF PROJECTION
When managers of an organization are faced with making

decisions with uncertainty, what type of forecast is available for them?
First forecasting procedures can be grouped into long-term and short-
term forecasting. Long-term forecasting is needed to set the general
long-term goals of an organization. Thus this is a special focus for top
management. Short-term forecasting is used in designing strategies
directly and used by management middle and first-line management
in tailoring short-term future needs.
Forecasting can also be grouped in the form of its position in a

macro-micro unit, ie the extent to which its involvement in the values
of details is small compared to the values of large summaries.
Quantitative forecasting methods are carried out using data collected
from time to time. The assumption used is that changes in the value of
variables follow a pattern that occurred in the past period (historical
pattern) and has an observed inter-variable relationship. In business
and economic research using statistical methods, assumptions are
needed to make a research design. For example, forecasting is
carried out on the volume of sales of goods X using quantitative data
regarding the sales volume of several periods (years / months) ago.
Forecast is made with the assumption that sales volume in the future
has the same pattern as the sales volume in the past (historical
pattern). Likewise, another assumption is that the variables
experienced have an influence relationship. For example, sales
volume forecasts will be made in the future. Sales volume is
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influenced by promotional costs. The more costs incurred for

promotional activities, the higher the sales volume. Forecasting about
sales volume uses two historical data, namely data on sales volume
and data on promotion costs. The assumption used is that there is a
relationship between the sales volume and promotion costs. The
weakness of the forecasting technique is that if the change in the
value of the variable to be predicted does not follow the pattern of the
past (the assumptions used are not met), it will produce a biased
forecast.
There are basically two types of quantitative forecasting

methods, namely those based on time series and causal
relationships. Quantitative time series methods include smoothing and
decomposition methods. Smoothing methods include the simple or
naïve method, the simple average (single average), the moving
average and the exponential smoothing method. Quantitative
forecasting methods based on causal relationships include simple
regression and multiple regression methods.
To make predictions of variable values whose changes do not

follow historical patterns can be done with qualitative forecasting
techniques (qualitative forecasting / judgment methods). Prediction of
variable values using these techniques is strongly influenced by the
level of intuition, experience, knowledge, and other factors owned by
the maker Forecasting. Forecasting using qualitative techniques is
usually carried out on the value of variables whose changes are
patterned randomly (in the capital market known as random walks).
However, forecasting can also use a combination of both.

Quantitative forecasting is based on observing patterns of changes in
past data. To make predictions in the future, judgment is also based
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on intuition and feelings that make forecasts. The two methods are
complementary. Quantitative methods are usually used to reduce or
eliminate the tendency of human habits to have extreme (optimistic
and underestimate) feelings about conditions in the future. This
extreme feeling often leads to forecasting errors using qualitative
methods.
The use of forecasting results (both planners and decision

makers) must be alert to the use of incorrect forecasting methods (not
suitable with the problem at hand). Using the wrong forecasting
method will produce the wrong forecast. If the wrong forecast is used
to formulate a policy, it will produce a wrong policy as well.
A. Relevant Data
A data can be reviewed according to
a. Type: Quantitative -> can be stated in Qualitative numbers ->

Cannot be stated in numbers quantitated through presentation
and proportion analysis
b. Sources: Internal Data and External Data
c. Its nature:
Discrete Data: obtained by counting
Continuous Data: has a value at a certain interval
B. Forecasting Techniques
a. Quantitative forecasting techniques focus more on opinion

(judgment) and human intuition in the forecasting process.
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b. This forecasting technique is divided into two:
o Statistical Techniques: Focusing on patterns, changes

and disturbance factors caused by random influences
o Deterministic Techniques: Includes identification and

determination the relationship between the variables that
influence it
Example: Regression
input output model
Sources: Internal Data and External Data
Forecasting here is difficult to estimate correctly
The purpose of forecasting = minimizing the effect of uncertainty on

the company, by measuring the mean absolute error (MEA) or mean
squared error.
n
MAE = 1/n ∑ ӏf i – y i ӏ
i= 1
n
MAE = 1/n ∑ ӏe i ӏ
i= 1
For broader coverage related to this topic, see Mean absolute

difference.
ӏe i ӏ = ӏf i – y i ӏ
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In statistics, the average absolute error (MAE) is a quantity

used to measure how close an estimate or prediction is to the final
result. Absolute error means given by As the name suggests, the
average absolute error is the average absolute error, where the
prediction is and the true value. Note that alternative formulations may
include relative frequency as a weight factor.
The average absolute error is on the same scale of the

measured data. This is known as a measure of scale dependent
accuracy and therefore cannot be used to make comparisons
between series on different scales.
Average absolute error is a general measure of estimated error

in time series analysis, where the term "mean absolute deviation" is
sometimes used in confusion with a more standard definition of
average absolute deviation. The same confusion exists more
generally.
related steps The average absolute error is one of a number of

ways to compare estimates with their eventual results. a well-
established alternative is that the mean error is minimized (Mase) and
the mean squared error. This all summarizes performance in a way
that ignores the over-or under-predicted direction; A measure that
does not place emphasis on this is the mean signed difference.
Where the prediction model will be installed using the chosen

performance measure, in the sense that at least the squared
approach is related to the mean squared error, the equivalent for the
average absolute error is a deviation.
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CHAPTER VII
CHARACTERISTICS OF SITUATION
AND FORECASTING METHODS
In making predictions, the thing to note is the situation that

surrounds what we will predict. An understanding of the situation is
very much needed to determine what method is appropriate. With
regard to the problem of this situation, Makridakis and Wheelwright in
his book Forecasting Methods for Management explain there are 6
kinds of situations that have an important role that must be considered
so that forecasting can be effective:
A. Time Horizon
The period of time during which the forecast results will have an
effect is a determining factor in the choice of forecasting methods.
The time period (time span) is generally grouped into 4, namely:
1. Very short term (less than 1 month)
2. Short term (1 to 3 months)
3. Medium term (3 months to 2 years)
4. Long term (2 years or more)
Determination of the time span in making predictions does not

have to be like that. However, it should be understood that the use of
incorrect forecasting time frames will produce invalid forecasts. For
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example forecasting using sales data for the past 3 months to make
sales forecasts for the next 10 years. The time span used in this
forecasting will naturally produce an inappropriate forecast.
B. Level of Aggregate Details
Forecast of a broad scope is usually made by dividing

forecasting activities into several subramalanes. The aim is to make it
easier to make predictions and forecasting activities can be simpler.
For example the government wants to predict economic growth.
Forecasting about economic growth will be complex, because many
sectors (production activities) make it up. So that forecasting about
economic growth is easier and better, then forecasting activities are
carried out on the growth of each economic sector contained in the
national production.
C. Number of Items
Situations where forecasting is done for a large number of

variables require procedures to prepare forecasting activities to be
more complex than forecasting is done for only one variable. Clearly,
an inventory control manager with 10,000 types of products will not
use the same method to obtain the required predictions compared to
the staff who will make predictions about macroeconomic conditions.
D. Control versus Planning
In control problems (contor), management by exception is a

common procedure. Control is done by using several methods to
determine as early as possible the processes that occur out of control
(out of control). In certain situations forecasting methods must be able
to recognize changes in archetypes or relationships at an early stage.
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On the planning side, planning generally assumes that existing

patterns will continue in the future, so forecasting is emphasized in the
effort to identify existing patterns to make predictions in the future.
E. Constancy
Making predictions in situations that do not change over time is

very different from making predictions in situations that continue to
change. In a stable situation, quantitative forecasting methods can be
used and carried out periodic monitoring to determine the accuracy of
the forecast. In the event of a change in situation, the method needed
is a method that is able to adapt continuously so that the forecast that
is processed can reflect the current best results and provide current
information.
F. Existing Planning Procedure
Every use of forecasting methods generally involves changes in

planning and decision making procedures. This is not easy to apply in
business organizations, because usually there are factors of
resistance (rejection). Therefore, the change should start from things
that are not much different from the procedures that are already
exists, then upgrade is done in stages.
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CHAPTER VIII
IMPORTANT FACTORS IN DESCRIBING
VARIOUS FORECASTING METHODS
A. Quantitative Method
Quantitative Forecasting Methods can be grouped into two

types, namely the time series model / time series method used to
analyze a series of data that is a function of time, and a causal model
/ method (causal / explanatory model) assumes the predicted
variables indicate there is a causal relationship with one or several
independent variables.
1. Time Series Model / Periodic Series Method, divided into:
o Moving averages,
o Exponential smoothing,
o Trend projection
a. Moving averages,
• Simple moving averages: useful if it is assumed that

market demand remains stable.
• Weighted moving averages: if there are patterns or

trends that can be detected, the scales can be used to
place more pressure on new values.
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b. Exponential smoothing
Exponential Refinement: forecasting method by adding

alpha parameters in the model to reduce the
multiplication factor. The term exponential in this method
is derived from the weighting / weighting factor
(smoothing factor from previous periods in the form of
exponentials).
c. Trend projection
Trend projection method with regression, is a method

used both for the short and long term. This method is a
trend line for mathematical equations.
2. Causal / Explanatory Model / Causal Model
It is a forecasting method based on the relationship between

predicted variables and other variables that affect it but not time. In
practice this type of forecasting method consists of:
1. Regression and correlation methods, which are the methods

used for both the long and short term and are based on
equations with the least squares technique that is analyzed
statically.
2. Input Output Model, is a method used for long-term

forecasting that is commonly used to develop long-term
economic trends.
3. Econometrics model, is a forecast that is used for the long

term and short term.
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Forecasting using the regression method:
The use of this method is based on existing variables and will

affect the results of forecasting.
Things that need to be known before forecasting using the

regression method are knowing in advance knowing conditions such
as:
1. The existence of past information
2. Existing information can be made in the form of data
3. It is assumed that existing data patterns from past data will

be sustainable in the future.
The data available in the field are:
1. Seasonal
2. Horizontal (Stationary)
3. Cycle (Cylical)
4. Trend
B. Qualitative Method
Qualitative methods are generally subjective, influenced by

one's intuition, emotions, education and experience. Therefore the
results of forecasting from one person to another can be different.
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However, qualitative forecasting can use forecasting techniques /

methods, namely:
1. Jury of Executive Opinion: this method takes the opinions or

opinions of a small group of top managers / top managers
(marketing, production, engineering, finance and
logistics), which are often combined with statistical
models.
2. Combined Sales Force: each salesperson predicts the level

of sales in his area, which is then combined at the
provincial and national level to achieve a comprehensive
forecast.
3. Delphi Method: in this method a series of questionnaires is

distributed to respondents, the answers are then
summarized and given to experts to be made forecast.
The method is time consuming and involves many
parties, namely the staff, who make a questionnaire,
send, summarize the results for use by experts in
analyzing them. The advantage of this method is that the
results are more accurate and more professional so that
the forecasting results are expected to be close to actual.
4. Market survey (market survey): Input obtained from

consumers or potential consumers of the planned
purchase in the observed period. The survey can be
carried out by questionnaire, telephone, or direct
interview.
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A. Ability Factors And Prediction Adjustments
There are 6 important factors in describing various forecasting

methods. These factors reflect the ability and adjustment to make
predictions. The six factors are as follows:
1. Time horizon.
Time horizon is related to individual forecasting methods, ie

different forecasting methods will produce different forecasting
suitability for different time periods. For example, qualitative
forecasting methods are used more to make long-term
predictions compared to quantitative forecasting methods that
are usually used to make medium or short-term predictions.
Time horizons also have an association with the number of
desired forecast time periods. Some forecasting techniques are
only suitable for forecasting in the span of 1 or 2 periods ahead,
but there are also forecasting techniques that are suitable for
predicting more than two periods in the future.
2. Pattern of Data
Most forecasting methods assume that the data used in making

predictions have certain patterns, such as seasonal patterns,
trend patterns, simple average patterns, cyclic patterns (cyclical
variations) or even irregular swordfish patterns. Because the
ability of different forecasting methods for different data
patterns, there is a need for alignment between the methods
used with the form of data patterns that will be used to make
predictions.
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3. Cost
The costs that are treated to make forecasting generally take

the form of developing forecasting methods, the cost of
preparing data, and the cost of forecasting. Sometimes other
costs are needed so that the method can be applied. The
difference in cost between using one method with another
method will certainly affect the interest in using a certain
forecasting method and in certain situations.
4. Accuracy
Data or information needed in forecasting is very closely related

to the level of accuracy of the forecast needed. For example, in
a decision, tolerance for accuracy of predictions ranging from
plus to minus 10% is sufficient. But in certain cases, predictions
that have a variation of 5% will be able to bring tempest.
5. Intuitive appeal, simplicity and easy to application.
The general principle in applying in the scientific method is only

the method understood by the planner or decision maker.
Forecasting is not based on something that is not understood or
believed. In addition, the problem situation is needed and
forecasting techniques must be adapted to those who will use
these predictions.
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6. Availability of computer software
Forecasting using certain quantitative methods is often used if

there are computer programs that match what is needed.
Computer programs to make predictions must be easy to use,
well documented, and free of viruses, so that the predictor can
use them, can understand them and can interpret them.
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CHAPTER IX
SELECTION OF FORECASTING TECHNIQUES
A. Factors in Selecting a Forecasting Model
The choice of forecasting techniques to be used is influenced by

4 (four) aspects, namely:
1. Data Patterns or Characteristics,
2. Duration,
3. Costs and
4. Desired Level of Accuracy.
Forecasting requires certain methods and which method to use

depends on the data and information to be predicted and the
objectives to be achieved.
B. Various Forecasting Methods
• Forecasting based on time period:
1. Short-term forecasting (less than one year, generally less

than three months: used for purchasing plans, work scheduling,
number of workers, production level),
2. Medium-term forecasting (three months to three years: used

for sales planning, production planning and budgeting and
analyzing various operations plans),
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3. Long-term forecasting (three years or more, used to plan new

products, capital budgeting, location of facilities, or expansion
and research and development).
• Forecasting based on operating plans
1. Economic forecasts: discuss the business cycle by predicting

inflation rates and other planning indicators,
2. Technology forecasts: related to the level of technological

progress and new products,
3. Demand forecast: related to the projected demand for company

products. This forecast is also called a sales forecast, which
directs the production, capacity and scheduling of company
scheduling.
• Forecasting based on methods / approaches:
1. Quantitative forecasting, using various mathematical models or

statistical methods and historical data and or causal variables to
predict demand.
2. Qualitative forecasting, using intuition, personal experience and

based on the opinion (judment) of the forecasters.
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C. Useful Data Criteria and Forecasting Data Types
Four useful data criteria include:
1. Data should be reliable and accurate. Appropriate handling

must be carried out on data collected from reliable sources with
due regard to its accuracy.
2. Data should be relevant. Data must represent the state in

which they are used.
3. Data should be consistent. When data relating to the

definition changes, adjustments need to be made to maintain
the consistency of historical patterns. This can be a problem, for
example, when government officials change the composition of
the mix or ("basketball market") used in calculating the cost of
living index. Thirty years ago PC computers were not part of the
product mix purchased by consumers.
4. Data should be on time. Data collected, summarized, and

published based on the timeliness will provide the highest value
for the forecaster. It could be too little data (not enough
historical data on which to base future events) or too much data
(data from irrelevant historical periods).
D. Monitoring Forecast
• When the forecast is complete, the most is not to forget it. Very
few managers want to remember if their forecast results are so
inaccurate, but companies need to determine why the actual
demand (the variable tested) is significantly different from what is
projected.
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• One way to monitor forecasting to ensure effectiveness is to use

directional cues.
• Direction Signal (Tracking Signal): is a measurement of the

extent to which the forecast predicts the actual value well
• Direction signals, calculated as the number of running sum of the

forecast errors, RSFE divided by the mean absolute deviation
(MAD)
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CHAPTER X
SOURCE OF FORECASTING AND UNCERTAINTY
In physics, identification and verification of patterns or

relationships is real and objective. Thus, instrument precision can
reduce measurement errors to the zero level. This is very different
from economics where measurement errors often occur. Factors
causing it are a very complex economic situation, inconsistent human
behavior, there is a grace period between actions and results, and
many other factors, so forecasting errors in physics are facts that
cannot be denied.
A. Mistakes in Identifying Patterns and Relationships
Patterns or relationships that are illusory can be identified

if there really isn't any. This can occur, both in qualitative
forecasting methods (judgment forecasting) and in quantitative
forecasting (quantitative forecasting). In statistical models,
pseudo correlations can occur in the use of data little
observation. Likewise, the correlation between two variables will
be false (spirous), if the correlation between the two variables
occurs because of other variables that can change the two
variables in the same direction. Existing patterns or
relationships will be inaccurate due to (a) insufficient available
information, (b) the actual conditions are very complex to
understand, and (c) the analysis model uses a limited number
of variables. Pseudo or incorrect identification will produce
serious forecast errors, if the pattern or relationship in the future
is different from the patterns and relationships of the past.
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B. Unclear Patterns or Inaccurate Relationships
In social science, it is often found patterns that change

from time to time that are not real or relationships between
variables that are not appropriate. Although on average
patterns or relationships can be identified, but there are always
fluctuations around these averages in almost all cases. The
purpose of using statistical models is to identify patterns or
relationships so that past data has fluctuations in average as
small as possible. Nor is this a guarantee that the magnitude of
forecast errors in the future will be the same as in the past.
C. Changes in Patterns or Changes in Relationships
In the social sciences, patterns or relationships

continually undergo changes that are difficult to predict
beforehand. Changes in patterns or relationships can affect the
magnitude of errors that occur with magnitudes that cannot be
recognized beforehand. The magnitude of the error depends on
the magnitude and duration of the change.
Selection of Forecasting Techniques
D. Calculating Forecast Error
The accuracy of a forecasting model depends on how close the

forecasting value is to the actual data value.
1. The difference or difference between the actual value and the

forecast value is referred to as "forecast error" or the deviation
stated in:
et = Y (t) - Y ’(t)
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Where: Y (t) = The actual data value in the period t
Y '(t) = Value of forecasting results in period t
t = Forecasting period
Then obtained the Number of Forecasting Error Squares

abbreviated as SSE (Sum of Squared Errors) and Standard
Error Estimated (SEE - Standard Error Estimated)
SSE = S e (t) 2 = S [Y (t) -Y ’(t)] 2
2. Choosing the Forecasting Method with the smallest error.
If the error value does not differ significantly at a certain level of

accuracy (F statistical test), then arbitrarily choose these
methods.
3. Conduct Verification
To evaluate whether the data patterns using the forecasting

method match the actual data patterns.
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CHAPTER XI
SALES FORECAST
A. Definition of Sales Forecast
Sales Forecast is a technical estimate / projection of potential

consumer demand for a certain time with a variety of assumptions.
In this case the results of a forecast are more quantitative
statements or assessments of future conditions regarding sales as
a technical projection of potential consumer demand for a certain
period of time. Nevertheless the estimated results obtained may
not be the same as the plan. This is caused by :
• Forecast is more a statement or a quantified assessment of

future conditions regarding a particular subject, such as sales.
• Sales Forecast is a technical projection of potential consumer

demand for a certain period of time, by mentioning the
underlying assumptions.
• Forecast should only be seen as input for developing a sales

plan.
• Management can accept or reject the results of an
forecast
Good forecasting techniques for existing businesses are very

important to note, therefore there are some things that need to be
considered in forecasting techniques, namely:
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1. Horizon Forecasting
There are two aspects of the time horizon associated with each
forecasting method, namely: the scope of time in the future and
the number of periods for which the forecast is desired.
2. Level of Accuracy
The level of accuracy required is very closely related to the

level of detail required in a forecast. For some decision makers
expect variations or deviations from predictions made, while for
other cases or cases may consider that the variations or
deviations of predictions are quite dangerous.
3. Data Availability
The method used is very beneficial, if it is associated with the

situation or the information available or the data held. If from the
past data it is known that there is a seasonal pattern, for
forecasting one year in the future the method of seasonal
variation should be used. Meanwhile, if from the past data it is
known that there is a pattern of relationships between variables
that influence each other, then it is better to use the Causal or
Correlation method.
4. Forms of Data Patterns
The main basis of the forecasting method is the assumption

that the kinds of patterns found in the data are
predicted to be sustainable. For example, some series depict

seasonal poles, as well as trends. Other forecasting methods
may be simpler, consisting of an average value, with random or
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random fluctuations contained. Due to differences in the ability

of forecasting methods to identify data patterns, it is necessary
to make adjustments between the predicted data patterns and
the forecasting techniques and methods to be used.
5. cost
Generally there are four cost elements that are covered in the
use of a forecast procedure, namely the costs of developing,
storing data, operating operations and the opportunity to use
other techniques and methods. The existence of a real
difference in costs, has an influence on whether or not the use
of certain methods can be interesting for the situation at hand.
6. Type of model
In addition, consideration should be given to the assumption of

several important basic patterns in the data. Many forecasting
methods have assumed the existence of several models of
predicted conditions. These models are derat where time is
described as an important element in determining changes in
patterns, which may be systematically explained by regression
or correlation analysis. Another model is the causal model or
"causal model", which illustrates that the prediction is very
dependent on the occurrence of a number of other events, or its
nature is a mixture of the models mentioned above. These
models are very important to note, because each of these
models has different abilities - different in the analysis of the
situation for decision making.
7. Easy or not the use and application
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One general principle in the use of scientific methods from

forecasting for management and analysis is methods that can
be understood and easily applied which will be used in decision
making and analysis. This principle is based on the reason that,
if a manager or analysis is responsible for the decisions he
makes or the results of the analysis conducted, then he
certainly believes. So, as an additional feature of forecasting
techniques and methods is that which is needed for the menu.
B. Forecast Technique
In general, forecast techniques commonly applied to obtain a Sales

Forecast can be grouped into:
1. Forecast based on judgment
2. Forecast based on statistical analysis.
3. Forecast based on special methods
Forecast based on judgment can be done through the opinion

of the leadership of the marketing department, the opinion of
the sales officers, the opinion of the dealer, the opinion of the
consumer, and the opinion of experts.
2. Forecast based on statistical analysis
a. If [calculation is based on historical data from just one

variable, then the method is used:
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1. The free trend method
2. Semi Average Trend Method
3. Moment Trend Method
4. The least Square trend method
b. If the calculation based on historical data from one variable to be

estimated is related to other historical data which has a strong
relationship to the development of the variable to be estimated, then
use the following method:
1. Correlation Method
2. Regression Method
Intresto Corp, which is engaged in the children's food business, has

annual sales data as shown in the Table. 1, as follows:
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Tabel 9.1
Intresto Corp Children's food sales in 20X4-20X8

Year Number of Sales (million units)
20X4 140
20X5 148
20X6 157
20X7 160
20X8 169
Against the sales data of Intresto Corp can be made Sales Forecast
for 20X9 and onwards using some of the methods mentioned before,
the following will be given
C. Illustration of Use of the Methods
1. Free Trend Method
In general, the free trend method tends to be used as a

preliminary analysis that will provide an initial description of the
problem at hand. The free trend method tries to look at
observational data patterns through the scattered points of the
pair of data sales at any time. Based on the scattered data
formed it can be estimated sales trends from these data. For
example when it comes to sales data.
In general, the results of a Sales Forecast will be converted into

a sales plan by taking into account the following:
a. Opinion
b. Planned strategies
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c. Engagement / commitment with resources
d. Management's determination to achieve sales goals.
In general, forecast techniques are generally applied to
get a Sales Forecast can be grouped into:
2. Forecast based on statistical analysis.
3. Forecast based on special methods
2. Correlation and Regression Methods
Correlation and regression analysis shows the relationship

between one variable with one or more other variables. With
correlation analysis it can be seen the closeness of the
relationships of the variables that are of concern while with
regression analysis it can be seen the form of relationships
of the variables that are of interest.
With regression analysis it can be seen the magnitude of

changes in the variables sought bla other factors that affect
these variables change. As in the example above, changes
in the level of sales are not only determined by the pattern
of sales but also determined by other factors.
The application of this method is based on Jaygree , Inc in

the table below is as follows. If X represents the cost of
advertising (in millions of rupiah0 and Y shows the number
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of sales (in million units) the illustration of this method is

shown as follows:
Years X Y XY X1 X2....
20X3 9 140 1.260 81 19.600
20X4 12 148 1.776 144 21.904
20X5 14 157 2.198 196 24.649
20X6 15 160 2.400 225 25.600
20X8 17 169 2.873 289 28.561
Sum 67 774 10.507 935 120.314
Regression equation -------------> Y = a + b (X)
Values a and b can be calculated using the formula below :
a = (Σy) (Σx²) – (Σx) (Σxy)

. n(Σx²) – (Σx)²
b = n(Σxy) – (Σx) (Σy)

. n(Σx²) – (Σx)²
Following are the Steps in conducting Simple Linear Regression

Analysis:
1. Determine the Purpose of Performing a Simple Linear

Regression Analysis
2. Identify Variable Factors Cause (Predictor) and Variable Effect

(Response)
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3. Perform Data Collection
4. Calculate X², Y², XY and the total of each
5. Calculate a and b based on the formula above.
6. Create a Simple Linear Regression Equation Model.
7. Make Predictions or Forecasting of the Cause Factor Variable or

Effect Variable.
Years X Y XY X2 Y2....
20X4 9 140 1.260 81 19.600
20X5 12 148 1.776 144 21.904
20X6 14 157 2.198 196 24.649
20X7 15 160 2.400 225 25.600
20X8 17 169 2.873 289 28.561
Sum 67 774 10.507 935 120.314
The coefficients a and b are searched for by the equation
a = (Σy) (Σx²) – (Σx) (Σxy)

. n(Σx²) – (Σx)²
b = n(Σxy) – (Σx) (Σy) 5 (10.507) – (67) (774)

. n(Σx²) – (Σx)² b = ---------------------------------- = 3,64
5 (935) - (67)2
Σ Y – b. ΣX 774 – (3,64) (67)

a. = --------------------------- = -------------------------- = 106,02
n 5
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Y = 106,02 + 3,64 X
This equation can be interpreted that if advertising costs go up by one

million rupiah, the number of sales will increase by 3.64 million units.
Correlation coefficient is sought with the equation:
n YX i   Y  X i 
rYX i 
n Y 2 2

  Y  n X i   X i 
2 2

Correlation coefficient values for previous data are:
5 (10.507) – (67) 774

r= ---------------------------------------------------------- = 0.,994
√ (5(120.314) - (774)2)(5 (935)2 - (67)2)
The interpretation of the correlation coefficient theoretically is as

follows:
• If 0> r> 1 means that variable x has a positive

relationship and is directly proportional to the variable Y.
If the value of Variable X increases, the value of variable
Y will also increase, and vice versa. The closer the value
of r to 0, the weaker the strength of the relationship
between the two variables, conversely the closer the
value of r to the stronger the relationship of the two
variables.
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• If r = 0 means that X does not have a linear relationship

with the Y variable. It means that the fluctuation of the
variable X value does not affect the fluctuation or the
development of the Y variable value.
• If -1 <r <0 means that variable X is related to variable Y

but the relationship is negative. In this case if the value of
ariabel X increases, the value of the variable Y is
precisely reduced, and vice versa.
Thus, because the value obtained is close to 1, it means that

there is a very strong relationship between advertising costs
and the number of sales. The nature of the relationship
between the two is positive which means that with the increase
in advertising costs there will also be an increase in the number
of sales.
D. Forecast Based on Special Methods
a. Industry analysis
In this analysis more emphasis on "market share" owned by the

company. This analysis links the company's sales potential with
the industry in general (volume, position in competition)
Stages in the use of industrial analysis:
1. Make a projection of industry demand
2. Managing the company's position in competition
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Company Demand
Market Share = ------------------------------------------ x 100%
Industrial Demand
b. Product Line Analysis
Generally, product line analysis is used in companies that

produce several types and do not have in common, so in
making the forecast must be separate.
c. End-use Analysis
For companies that produce semi-finished products, they still

need further processes to become finished products and are
ready to be consumed, then in making the forecast, it is
determined by the end use that is related to the product
produced
E. Factors That Affect Sales Trend
1. Internal Factors
Namely the factors that come from within the company.
Included in this factor include
a. Sales of the past years
b. Company policies related to sales matters
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c. Production capacity and possible expansion
d. Workforce owned
e. Available capital
f. Other facilities
2. External Factors
These are factors that come from outside the company
Included in this factor, among others
a. state of competition in the market
b. The company's position in competition
c. Population growth rate
d. Level of community income
e. The elasticity of demand for the price of goods produced by

the company
f. Religion, adapt the customs and habits of the people
g. Government policy
h. State of national / international economy
i. Technological advances in substitute goods, consumer tastes
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F. Forecast Dengan Smoothing
1. Single Smoothing Method
S = Xt + Xt-1 + . . . Xt-n
n
o St+1= forecast for the period ke t+1
o Xt= data for period t
o n = period of moving averages
Moving averages:
If there is data during the P period we can only make a forecast for
the period to P + 1
The longer the moving average will produce a smoother moving

average
 I Xt - St I
N
 Calculate errors
 ( Xt - St)2
n
Weaknesses Moving average
 Need historical data

 All data are given the same weight
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 Cannot keep up with drastic changes

 Not suitable for forecasting existing data
 trend symptoms
2. Double Moving Averages Method
 Moving averages are done twice

 Then look for the value of a (constant)
 Finding the value of b (slope)
 Calculate forecasts with formulas
Calculates the average of values over a number of years to

estimate a given year
3. Single Exponential Smoothing Method
St+1 = Xt + (1 - ) St
Is the development of moving averages Alpha has a value between 0

and 1. Try using the initial data in the example of the first single
moving averages. Also calculate the mean abs. Error and mean
sq.error
4. Double Exponential Smoothing Method
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The basis of this method is the same as the linear moving

average method, namely that both single and double refinement
values lag behind the actual data if there is a trend element. The
difference between both single and double values can be added to
the single smoothing value and adjusted for the trend.
Following are the equations used in the calculation of Double

Exponential Smoothing with Trend:
S’t = α Xt + (1- α).S’t-1
S”t = α S’t + (1- α).S”t-1
at = 2S’t – S”t
bt = α (S’t – S”t) / (1- α)
Ft+m = at + bt (m)
S’t = single exponential smoothing values
S”t = double exponential smoothing values
at = adjustment of single smoothing value for period t
bt = component of inclination
Ft+m = the forecast value for m the future period of t
M = number of forecasting periods
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CHAPTER XII
BUSINESS PROJECTION METHOD ON
THE ACCURACY OF MAIN RESULTS
A. Time Series Analysis
Forecasting based on its nature can be divided into two,

namely qualitative forecasting and quantitative forecasting.
Quantitative forecasting methods can be divided into two parts,
namely time series forecasting methods and causal methods, while
qualitative methods are divided into exploratory and normative
methods.
Quantitative forecasting techniques are very diverse,

developed from various disciplines and for various purposes. Each
technique to be chosen has its own characteristics, accuracy, level
of difficulty and costs that must be considered. Makridakis,
Wheelwright and McGee explained that in general quantitative
forecasting can be applied if there are three conditions below :
1. Available information about the past (historical data)
2. The information can be quantified in numerical form
3. It can be assumed that some aspects of past patterns will

continue in the future.
Forecasting using the time series method is based on the

prediction of the future based on the past value of a variable and /
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or forecasting error in the past. The purpose of such time series

forecasting methods is to find patterns in the historical data series
and extrapolate the patterns in the data series into the future.
According to Makridakis, Wheelwright and McGee, an

important step in choosing an appropriate time series method is to
consider the type of data pattern. Data patterns can be divided
into four, namely:
1. Horizontal pattern, occurs when data fluctuates around a

constant or stationary value of the mean.
2. Seasonal pattern, occurs when a data series is influenced by

seasonal factors (for example certain quarter, monthly or
day of week)
3. Cyclic pattern, occurs when the data is influenced by long-

term economic fluctuations such as those related to
business or economic cycles.
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4. Trend patterns occur when there is a long-term increase or

decrease in data.
If there is a data series that includes a combination of

these data patterns, then the forecasting method that can
distinguish each pattern must be used if there is a separation of
the components of the pattern.
B. Decomposition Method
The basic principle of the time series decomposition method is

to decompose (break) time series data into several patterns and
identify each component of the time series separately. This separation
is done to help improve the accuracy of forecasting and help better
understand the behavior of data series (Makridakis, Wheelwright and
McGee.
Changes in something that usually has a rather complex

pattern, for example there are elements of increase, decrease,
fluctuate and irregular, so to be predicted and analyzed at once is
very difficult, so that data composition is usually held in several
components. Each component will be studied and searched one by
one, once found will be merged again into the value of the appraiser
or forecast.
The decomposition method is based on the assumption that the

available data is a combination of several components,
Data = Pattern + Error
= f(trend, Cycle, Season) + Error
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The error component is assumed to be the difference from the

combination of trend, cycle and seasonal components with the actual
data.
The assumption above implies that there are four components

that affect a time series, namely three components that can be
identified because they have certain patterns, namely: trends, cycles
and seasonality, while the error component cannot be predicted
because it does not have a systematic pattern and has no movement
regular.
A trend is a tendency to move up or down on data that occurs in

the long run. Seasonal variations are up and down movements that
occur periodically (repeating at the same time interval). The cyclical
component is a change in tidal waves that recur over a long period of
time, for example: 10 years, the 20th quarter and others. Components
of error (random) are irregular movements and occur suddenly and
are difficult to predict. This movement can arise as a result of wars,
natural disasters, monetary crises and others.
According to Hildebrand, the components of trends, cycles,

seasonality and errors of time series can be assumed in two different
models, namely the multiplicative model and the additive model. The
multiplicative model of the decomposition method is :
Xt = It . Tt . Ct .Et
while the additive model is:
Xt = It + Tt + Ct + Et
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dimana,
Xt = actual data in the t-period
Tt = Trends component in the t-period
Ct = cycle component in the t-period
It = seasonal component in the t-period
Et = component error in the t-period
According to Makridakis, Wheelwright and McGee, the simple

average decomposition method assumes an additive model, while the
ratio decomposition method on the moving average (classical
decomposition) and the Census II method assume the multiplicative
model.
C. Calculating Trends
Calculating the value of a trend can be done by several

methods, in this paper three methods most frequently used are
presented, namely:
1. least square method (least square method)
Calculation of trend values with this method is also commonly referred

to as metode linier yang dilakukan dengan menggunakan persamaan:
Y = a + b. t
Y = time series data period tn
t = time (day, week, month, quarter, year)
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a, b = constant number
Values a and b are obtained from:
2. Quadratic trend method
Calculating trend values using this method is done using the equation:
dimana:
Y = period time series data t
a, b, c = constant number
Values a, b and c are obtained from:
3. Exponential Trend Method
Calculating trend values using this method is done using two

equations:
(1) Y = a(1+b).t , This equation is used for discrete variables
(2) Y = a.exp(b.t), This equation is used for continuous variables
Y = period time series data t
a, b = constant number
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Values a and b are obtained from:
a = anti Ln(∑LnY)/n
b = anti Ln (∑(t.LnY)/ ∑(t)2 ) - 1
D. Separation of Seasonal Components by the Classic

Decomposition Method
First the trend and cycle components are separated from the
data by applying a moving average whose element length is the same
as the seasonal length in the original data. Moving averages of such
length have no seasonal influence and have no or very few random
components.
For example, if there are monthly data, the 12-month moving average,
Mt12, can be calculated as follows:
Mt12 = (Xt+5 + ...... + Xt + Xt-1 + ...... + Xt-s)/12
The resulting moving average has relatively freed seasonal influences

and random effects on the monthly data which are then used to
estimate the trend-cycle component as in the following equation:Mt =
Tt . Ct
The original data is then divided by the results of the estimation of this
trend-cycle to get estimates from seasonal components that are still
mixed with random components.
Rt = Xt
Mt
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= It.Tt.Ct.Et
Tt.Ct
= It.Et
The random component of the ratio value, Rt, is issued by using an

average form in the same month by first removing the largest and
smallest value in the month. This type of averaging is called the
medial average. If the season length is 12 months, then the seasonal
index is obtained by adjusting the median monthly average value so
that the number becomes 1200 (Pindyck and Rubinfield, 1976).
Makridakis, Wheelwright and McGee (1992), explained that the

purpose of adjusting the median monthly average value so that the
number becomes 1200 is to adjust the data series to the effects
caused by the calculation procedure.
This is similar to what White (1987) explained that the characteristic of

the seasonal component is that if the values of the seasonal factors
add up to the length of the season then the result will be the same as
the length of the season itself. This can be shown mathematically as
follows :
∑ It = L
t =1
where L is the seasonal length.
Croxton (1969) explains that estimates of the combination of trend,

cycle and random components can be obtained by dividing the
original data with the results of seasonal component estimates.
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DSt = Xt = Tt.Ct.Et
It
E. Separation of Cycle Components
A cycle is a change or a wave of ups and downs in one period and

repeats in another period. In the economy there are cycles of
recession, recovery, boom, and crisis. A cycle usually has a certain
period to return to its original point, this period is known as the length
of the cycle. Cycles also have a frequency that is cycles that can be
completed in 1 time period.
The cycle index is obtained from the equation used to calculate

moving averages divided by the equation that functions to calculate
trends. This is done if the model is multiplicative, but if the model is
additive then the cycle index is obtained from the equation used for
the calculation of moving average reduced by the equation that
functions to calculate trends
The Census II decomposition method is in principle the result of the

development of the classical decomposition method by sharpening
the system of separating seasonal components from other
components.
F. Separation of Seasonal Components by the Census

Method
The Census II decomposition method as described by Reitsch and

Hanke (1981) has an approach consisting of 4 phases. In the first
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phase the data is adjusted according to trading day. Adjusting data to

trading days is very important because of the many hours of work or
trade, variations in days from year to year make a certain contribution
or a certain influence on the level of sales. This is also explained by
Makridakis, Wheelwright and McGee (1992), that in some industries
such as retail and bank sales, this factor becomes very important,
because these factors will have a significant effect on the level of
sales.
The second phase of this method includes the initial estimation of

seasonal factors and the adjustment of the actual data series to the
seasonal factors. In this phase the initial separation of seasonal
factors from the trend component, cycle and then isolation of the
random component is made. In the third phase, adjustments made in
the second phase were again made to improve the seasonal
adjustment process and to obtain more accurate seasonal factors.
The final phase of the Census II method is to conduct very useful
tests to explain how this method successfully isolates seasonal
factors and for the further development of forecasting from cycle-
trends (Reitsch and Hanke, 1981).
The stages of the Census II method in identifying the seasonal

components of the time series are explained in more detail by
Makridakis, Wheelwright and McGee (1992), as follows:
1. Monthly trading day data is collected. The data is then

averaged, so that the average monthly trading day is
obtained. The coefficient of trading days per month is
obtained by dividing the data of trading days in a particular
month with the average value of trading days in the
corresponding month. Then the original data is divided by the
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coefficient of the corresponding trading day so that finally a

row of data is adjusted according to the trading day.
2. A 12 x 2 or 4 x 2 moving average is calculated as is done in

the classical method.
3. Before the seasonal component is estimated, extreme values

must be excluded. This can be done by going through the
following stages:
• MA 3x3 is applied to a series of centralized ratio data

(Rt) to eliminate as many random components as
possible. Loss of 2 pieces of data at each end of a series
can be overcome by making the estimated value
beforehand.
• The standard deviation per month is then calculated by

calculating the sum of the squares of the difference
between the value of the centralized ratio, Rt, with the
MA 3x3. The standard deviation is then used to create a
control limit of MA 3x3 ± 2. (Standard Deviation). Rt
values that are smaller or greater than the control limit
are then replaced with the corresponding values.
• Six missing data at each end of the series when the 12-
month centralized moving average is applied are
replaced by values in the years before and after. So that
the average monthly rate is 100, the ratio per year is
adjusted so that the number becomes 1200.
4. The 3x3 moving average is then applied to the data series obtained
in step 3. This is so that the seasonal component can be free of
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random movements caused by the random component, so an

initial seasonal adjustment factor is obtained.
5. The original data series or data series that have been adjusted
according to the trading day are then divided by the initial seasonal
adjustment factor, so that the data series are adjusted according to
the initial season.
6. The 15-monthly moving average from Spencer is then applied to

eliminate the effect of random components from the results of
initial seasonal adjustments. A finer estimation of trend
components and cycles is obtained from this moving average.
7. The final seasonal adjustment stage is done first by dividing the

original data with the estimated results of the trend-cycle
component obtained from the application of the Spencer moving
average. The final seasonal adjustment factor is obtained by
repeating step 3 through step 6.
8. After the final seasonal adjustment factor is obtained, the seasonal

factor for the next 12 periods is predicted with the following
equation:
It = It-12 + ½.(It.12 – It.24)
9. After the basic components of the time series have been estimated,
the final phase of this method is to test the data series to determine
whether the decomposition is successful or not. The test carried out
to determine the success of the seasonal component separation is
the adjacent month / period test, AMTt, with the following equation:
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AMTI = ∑ 2.XI t = 2,3,4, ....., n-1

(n-2) (Xt-1 + Xt+1)
Adjustment of the seasonal component is successful if the AMT

value is around 100 or within the control limit of 100 ± 5
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CHAPTER XIII
SELECTION OF THE BEST PROJECTION METHOD
A. The Most Suitable Projection Method
For each forecasting approach to be realistic and practically

relevant, the most appropriate projection method is generally the
method that has the smallest average error (MSE) and absolute
percentage error (MAPE). There are two main problems to avoid in
choosing a method, namely:
1. Selection is based on the extent to which a method is in

accordance with the data available for forecast one period
ahead
2. Data patterns or relationships are always assumed to be

constant.
Desired characteristics in a new approach may appear to be a

contradiction. For example, each time series method must be based
on past data, while at the same time future data conditions are not
necessarily the same as the past. Therefore forecasting accuracy is
not only measured to what extent the method used is in accordance
with historical data, but also measured from the extent to which the
method used is able to predict the conditions 1,2,3, .......... , m period
going forward (Makridakis and Wheelwright, 1994).
According to Hibon and Makridakis (1979) the initial step in

making future predictions is to determine whether formal forecasting
methods or informal procedures will be used. The facts obtained from
the animating literature expressly state that in the condition of ever-
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repeating data, quantitative methods or formal forecasting methods

are better than informal procedures.
B. Testing Accuracy in Formal Forecasting Methods
The accuracy testing of some formal forecasting methods for

several time horizons is carried out using glide simulations which by
Makridakis and Wheelwright (1994) are explained in the following
stages:
1. Historical data of n periods are collected.
2. A number of n-12 data is first analyzed and then a forecast of

12 periods ahead is made for each method that has been
chosen.
3. To compare the level of accuracy in each method, the forecast

results from each method are tested with several methods of
accuracy testing by utilizing the remaining 12 actual data.
4. The amount of data analyzed is then added one by one until

there is no data left. At the same time, the forecast for the last
12 periods is also continued, so that the forecast value for 11,
10, 9, 8 up to 1 coming period is obtained. The results of the
forecast at each time horizon are then tested with some method
accuracy tests and other tests as carried out in step 3.
5. The average error for each time horizon and the measurement
of accuracy for each method are calculated.
6. The formal forecasting method that is considered the most

suitable is chosen based on several measurements of the
accuracy of the forecast at each time horizon.
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C. Useful Test Statistics
In many forecasting situations, accuracy is seen as a criterion for

refusing to choose a forecasting method. In order to measure the
accuracy of predictions, we need tests of accuracy of predictions.
Some prediction accuracy tests that are often used include
(a) Average squared error (MSE)
where et is the residual value or the difference between the actual

data and the forecast value.
(b) Average absolute percentage error (MAPE)
where, Xt is the actual data and Ft is the forecast value.
The uses of the two measurements of forecasting accuracy are:
• To compare the accuracy of forecasting done by two different

methods.
• To find the optimal technique.
It would be very useful if there is a measure that can consider the cost
imbalance of large error components and provide a basis for
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comparison relative to naive methods. One measure that has this

characteristic is the U statistic developed by Theil. Mathematically U-
Theil statistics are defined as:
The range of U-Theil statistical values can be concluded as follows:
- If U = 1, then the naive method is as good as the technique or

method being evaluated.
- If U <>
- If U> 1 then there is no point in using formal forecasting

techniques, because the results are no better than naive
methods.
In addition, we also need a measure that can be used to indicate

whether there is still a residual pattern in the error value after a
forecast method is applied. Test statistics that can be used for this
purpose are Durbin-Watson statistics (D-W statistics), which are
mathematically defined as:
D-W statistics test the hypothesis that there is no autocorrelation in

residual values. The D-W statistic ranges from 0 to 4 with a central
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value of 2. A confidence interval can be formed involving 5 regions

as follows :
1. D-W £ D-WL = autocorrelation
2. D-WL <D-WL £ D-WU = testing regarding the presence or

absence of autocorrelation cannot be determined
3. D-WL <D-WL £ 4-D-WU = there is no autocorrelation in the

residual value
4. 4-D-WL <D-WL £ 4-D-WU = testing cannot be concluded
5. D-W> 4-D-WL = there is an autocorrelation in the residual value
D . The Exponential Smoothing Method

The single exponential smoothing method was developed with an
Initial equation, namely:
Ft = Predicted Value at time t
Xt = deed data at time t
n = the sum of all data
If the value of Xt-n is not available, then it must be replaced with an

approach (approximation). One possible substitute is Ft, so equation
(2.1) becomes:
Boyke Ht
Because n is a positive number, the value 1 / n will be a constant

whose value ranges between 0 and 1. If the value of 1 / n is replaced
by alpha, then equation (2.3) becomes :
The single exponential smoothing method is not good enough to be

applied if the data is not stationary, because the equation used in the
single exponential method does not have the trend smoothing
procedure which results in non-stationary data being non-stationary,
but this method is the basis for other exponential smoothing methods
(Makridakis, Wheelwright and McGee, 1992).
According to Assauri (1984), the rationale for both single and

double exponential smoothing methods is that the smoothing
value will be present before the actual data if there is a trend
component in the data. Therefore, for single smoothing values,
multiple smoothing values need to be added to adjust for
trends. Such a method is known as the Brown method. The
formulas used are as follows:
Boyke Ht
St = single smoothing value
St = double smoothing value
Xt = t-actual data
αt = total smoothing
bt = smoothing trends
F = forecast value
m = future period
a = consistent with values between 0 and 1
According to Reitsch and Hanke (1989), another double

exponential smoothing method that can be used to handle
linear trends is the 2 parameter method of Holt. In the Holt
method the trend value is not smoothed by double smoothing
directly, but the trend smoothing process is carried out using
parameters that are different from the parameters used in the
smoothing of the original data. In the Brown method there is
only one parameter and estimation of trend values is very
sensitive to random fluctuations. The Holt method provides a lot
Boyke Ht
of flexibility in selecting trend components. The Holt method is

mathematically written on the following three equations:
St = Single Smoothing Value
Xt = t-actual data
Bt = Smoothing the trend
Ft + m = Predicted Value
M = future period
α, β =constants with values between 0 and 1
Double exponential smoothing of the Brown method and the Holt

method can only be used for data that does not contain seasonal
factors. If the data to be analyzed is seasonal data, we need a
smoothing method that can handle seasonal factors directly. The
method is the Winters method. This method is similar to the Holt
method with an equation added to overcome the season variations as
follows:
Boyke Ht
St = single smoothing value
bt = smoothing trends
b = smoothing the influence of trends
F = forecast value
L = Seasonal Length
m = future period
α β γ = a constant with a value between 0 and 1
According to Makridakis, Wheelwright and McGee (1992), if the

seasonal index used to initialize the initial values of seasonal
components is not available then these values can be estimated or
approached with the following values:
Where Xt is the t-actual data and L is the seasonal length.
Boyke Ht
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Boyke Ht
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Boyke Ht

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1 | Business Forecast

TECHNICAL BUSINESS PROJECTIONS

Risk Anticipation Review and uncertainty are the core of estimates

Forecasting is the initial part of a decision making process and the

date in order for the forecast to be as accurate as possible. In some

However, good data processing does not guarantee a company

Projections or Business Forecasting are Busy, business for profit,

plan is targeted at a projection / forecast. To reduce risks and

B. Impact of Forecasting on Business

The method used is very beneficial, if it is associated with the

As we know that the method is a mathematical and pragmatic

Besides that, the method of forecasting also provides a

it is expected to provide a greater level of trust and confidence,

From this description, it can be concluded that the forecasting

Forecasting activities, also called projections or predictions, are

One of the fields that mostly applies forecasting or projection is

What exactly is the important role of forecasting or projection

of people in making decisions, whether it is strategic and influential in

C. Meaning of Projection / Forecasting

The definition of forecasting or projection itself actually varies. Here

- Estimated emergence of an event in the future, based on existing

- The process of analyzing historical data and current data, to

- The estimation process in an unknown situation.

- Statements made about the future.

- Use of science and technology to predict future situations

- Systematic efforts to anticipate events or conditions in the future

From some of the definitions above, it can be concluded that

Forecasting or projection is an activity that is organized, trying to

D. Business Projection Function

To find out whether the reinvested capital is in accordance with

Here, investors must analyze historical data on the company

2. For Company Managers

As a basis for developing the strategies needed for competition

To find out whether loans can be returned on time in

To project his career path in the future. Here, an employee can

5. For the Government

To formulate broader public policy interests. For example, it is

Forecasting purposes based on time available include:

1. Short term (Short Term)

Determine the quantity and time of items made into

2. Medium Term (Medium Term)

Determine the quantity and time of production capacity.

3. Long Term (Long Term)

Plan the quantity and time of production facilities. Usually,

F. Benefits of Business Projection

Forecasting: is the art and science of predicting events that will

Forecasting (forecasting) is very important in the fields of

Who needs divination? Every organization, whether a large

Forecasting (forecasting) is very important in the fields of

• First, the planning (planner) and also the decision maker

• Second, conditions in the future are difficult to ascertain at this

Who needs divination? Every organization, whether a large

A company is making a current budget for future use. The main

menambah pengeluaran untuk iklan, bagaimana pengaruhnya

• The central bank reduces interest rates on Bank Certificates.

• What factors influence (determine) sales?

• How will the development of national production (GDP) in the

• Is the current economic condition experiencing a recession? If

• What are the employee's needs for the next 5 years.

The questions above add to the understanding that

Business organizations (companies) in 2016 make a revenue

Another example is the budget made by non-profit

For forecasting, certain methods are needed and which method to