Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
12Activity
0 of .
Results for:
No results containing your search query
P. 1
12395603 Operations Management Forecasting MBA Lecture Notes

12395603 Operations Management Forecasting MBA Lecture Notes

Ratings: (0)|Views: 965|Likes:
Published by tarek221

More info:

Published by: tarek221 on May 21, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

11/11/2012

pdf

text

original

 
For comments:
 
ehabmes@yahoo.com 
 |
Page
Chapter 3: Forecasting
Definition:
Forecasting is a statement about the future. It is estimating future event (variable), bycasting forward past data. Past data are systematically combined in predetermined way to obtain theestimate. Forecasting is not guessing or prediction.
Forecasting help managers to:
 
Plan the system
 
Plan the use of system
Forecasts affect decisions and activities throughout an organization
 
Accounting, finance
 
Human resources
 
Marketing
 
MIS
 
Operations
 
Product / service designAccounting Cost/profit estimatesFinance Cash flow and fundingHuman Resources Hiring/recruiting/trainingMarketing Pricing, promotion, strategyMIS IT/IS systems, servicesOperations Schedules, MRP, workloadsProduct/service design New products and services
Common features of forecasting:
1.
 
Forecasting is
rarely perfect
(deviation is expected).2.
 
All forecasting techniques assume that there is some
degree of stability
in the system, and “what happened in the past will continue to happen in the future”.3.
 
Forecasting for a
group of items is more accurate
than the forecast for individuals.4.
 
Forecasting accuracy increases as
time horizon increases
.
Elements of good forecast:
1.
 
Timely:
Forecasting horizon must cover the time necessary to implement possible changes.2.
 
Reliable:
It should work consistently.3.
 
Accurate:
Degree of accuracy should be stated.4.
 
Meaningful:
Should be expressed in meaningful units. Financial planners should know how manydollars needed, production should know how many units to be produced, and schedulers need toknow what machines and skills will be required.5.
 
Written:
to guarantee use of the same information and to make easier comparison to actualresults.6.
 
Easy to use:
users should be comfortable working with forecast.
Types of forecast by time:
 
Short-range (days – weeks – months): Job scheduling, work assignments
o
 
Time spans ranging from a few days to a few weeks.
o
 
Cycles, seasonality, and trend may have little effect.
o
 
Random fluctuation is main data component.
 
Medium term (1-2 years):
Sales, production
 
Long range forecast (> 2years): change location
o
 
Time spans usually greater than one year.
o
 
Necessary to support strategic decisions about planning products, processes,and facilities.
 
For comments:
 
ehabmes@yahoo.com 
 |
Page
Example of sales forecast:Months Forecast of SalesActual SalesErrorSquaredError = E
2
1 10 8242 8 124163 11 74164 14 16245 10 824Total1444Forecast accuracy:
 
T
otal
absolute deviation (TAD)= 14
 
M
ean
absolute deviation (MAD)= ∑ (Actual-forecast)/n = 14/5 = 2.8
 
T
otal
Squared Error (TSE) = 44
 
M
ean
Square Error (MSE)= 44/5 = 8.8Steps in forecast development:
1.
 
Determine purpose of forecast.2.
 
Establish a time horizon: time limit, accuracy decreases with shorter durations.3.
 
Select forecasting technique.4.
 
Gather and analyze data.5.
 
Prepare the forecast6.
 
Monitor forecast.
Methods of forecast:
1.
 
Quantitative
(based on time series data):
Time series data:
a time ordered sequence of observation taken at regular intervals over time.Patterns resulting from plotting of these data are:a.
 
Trend:
A long-term upward or downward movement in data.b.
 
Seasonality:
Short-term regular variations related to calendar or time of day.c.
 
Cycle:
Wavelike variation lasting more than one year.d.
 
Random variations:
residual variations after all other behaviors are accounted for.e.
 
Irregular variations:
caused by irregular circumstances, not reflective of typicalbehavior.
Naïve forecast:
The forecast for
any period equals the previous period’s
actual value.
 
Simple to use.
 
Virtually no cost.
 
Quick and easy to prepare (no data analysis required).
 
Easily understandable.
 
Cannot provide high accuracy.
 
Can be a standard for accuracy and cost. Q: is the increased accuracy of anothermethod
worth the additional cost?
 
Can be applied in stable demand (moving around average), seasonal, and trend
Examples:1.
 
Sales of air conditioning units next July, will be the same as the sales in last July.
(Seasonal)2.
 
Highway traffic next Tuesday will be the same as last Tuesday
(stable, moving aroundaverage).
3.
 
If the last 2 actual values were 50 and 53, the next will be 56
(trend).
 
 
For comments:
 
ehabmes@yahoo.com 
 |
Page
2.
 
Qualitative methods:
(based on judgment and opinion)1.
 
Jury of executives:
opinions of high level executives2.
 
Sales force composite:
estimates from sales individuals are reviewed forreasonableness (may tend to make under estimates), then aggregated.3.
 
Consumer market survey:
Asking the customers may give best forecasts but it ishigher in cost, difficult to apply.
4.
 
Delphi method:
(a)
 
Panel of experts queried.(b)
 
Chosen experts to participate should be of a variety of knowledgeable people indifferent areas (finance, marketing, production etc). They are unknown to any one,except for the coordinator.(c)
 
Through questionnaire the coordinator obtains estimates from all participants.(d)
 
Coordinator summarizes results and redistributes them to participants along withappropriate new questions.(e)
 
Summarize again and refine forecasts and develop new question.Differences between qualitative and quantitative
 
Qualitative Methods Quantitative Methods
Uses when situation is vague Used in stable situationsand little data available Historical data availableNew products Existing productsNew technology Current technologyInvolves mathematical techniquesExample: forecasting newly introducedonline salesExample: sales of color TVs
Linear regression analysis:
 
Establishes a relationship between a
dependent variable
and one or more independent variables.
 
In simple linear regression analysis there is only one independent variable.
 
If the data is a time series, the independent variable is the time period.
 
The dependent variable is whatever we wish to forecast. (e.g. sales)

Activity (12)

You've already reviewed this. Edit your review.
1 hundred reads
sattyblr liked this
Atakelt Hailu liked this
nikth_jain liked this
nikth_jain liked this
mutaz123 liked this
mzty liked this

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->