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Forecasting
1
Forecasting
Essential preliminary to effective planning
Production planning
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Forecasting
Qualitative Methods
Judgment Methods
Jury of Executive Opinion
Delphi
Sales Force Composite
Users’ Expectation (Surveys)
Jury of Executive Opinion
Simplest method
Executives provide an estimate
Educated guess
Average of estimates taken
Delphi Method
Eliminates effects of interactions between
members
Experts do not need to know who other
experts are
Delphi coordinator asks for opinions,
forecasts on subject through questionnaires
Delphi Method, cont
Develop objective of forecast
Determine number of participants
Select and contact participants
Develop first questionnaire and submit
Coordinator analyzes responses
Delphi Method, cont
Develop second questionnaire based on
results of first
Share aggregate results of first round
Analyze responses
This technique eliminates the effects of
interaction among experts
Rounds continue until consensus reached or
experts’ opinions cease to change
Sales Force Composite
Members of the sales force estimate sales
in their own territory
Regional Sales Managers adjust for their
opinion of the optimism or pessimism of
individual sales people
General Sales Manager ‘massages’ the
figures to account for new products or
factors others are unaware of
Users’ Expectation (Market
research)
When small customer base, simplest method
is to ask customers to project their need for
the future period
Market testing or market surveys
Information expensive to obtain
Often customers don’t know their future need
Qualitative Methods
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Time Series Patterns
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Time Series Models
Naive: Ft 1 At
The forecast is equal to the actual value observed during
the last period – good for level patterns
Simple Mean: Ft 1 A t / n
The average of all available data - good for level patterns
Moving Average: Ft 1 A t / n
The average value over a set time period
(e.g.: the last four weeks)
Each new forecast drops the oldest data point & adds a
new observation
More responsive to a trend but still lags behind actual data
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Simple Moving Average
Forecast Ft is average of n previous
observations or actuals At :
1/n
n ... 3 2 1
today
Time Series Models con’t
Weighted Moving Average:
Ft 1 Wt A t
F n 1 A n (1 ) A n 1 (1 ) A n 2
2
F n 1 A n (1 ) A n 1 (1 ) A n 2
Exponential Smoothing:
Include all past observations
Weight recent observations much more heavily
than very old observations:
weight 0 1
Decreasing weight given
to older observations
(1 )
(1 )2
(1 ) 3
today
Exponential Smoothing:
Thus, new forecast is weighted sum of old
forecast and actual value
Notes:
Only 2 values (An and Fn ) are required, compared
with n for moving average
Parameter determined empirically (whatever
works best)
Rule of thumb: < 0.5
Typically, = 0.2 or = 0.3 work well
Regression Analysis
Dependent
variable
y’ = b0 + b1X ± є
variable (y) є
Dependent
B1 = slope
b0 (y intercept) = ∆y/ ∆x
Observation: y
Prediction: ^y
Dependent
variable
Zero
Independent variable (x)
Prediction
error: ε
Observation: y
Prediction: ^y
Zero
Dependent
variable
y = A + β X + β X + … + β k Xk + ε
1 1 2 2
Make forecasts
Expert opinions
Consumer intentions
Technological Forecasting
Which technologies will be available in the
future
Part of planning as this is the context in which
plans will operate or be implemented
Delphi Method
Internet
Cookies
Demographics
Trends
Strategies for Managing
Technology
Invention and Innovation
Entrepreneurship
Intrapreneurship
Managing Technological Change
E.g. advent of the Internet
Government Regulations
Questions?