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Business Forecasting

Business Forecasting

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Published by asifinnocent

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Categories:Types, Research
Published by: asifinnocent on Feb 08, 2012
Copyright:Attribution Non-commercial


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Second Assignment
Submitted to:
Dr. Dennis Petri
Submitted by:
Md. Nazmul Hasan- 110000703
Date of Submission:
11th April, 2011
Forecasting involves the generation of a number, set of numbers, or scenario thatcorresponds to a future occurrence. It is absolutely essential to short-range and long-range planning. Forecasting is based on the previous data, it is beyond prediction andmore subjective, based on instinct or guess. For example, the evening news gives thestock price "forecast" for the next day, not the stock price "prediction." Regardless,the terms forecast and predictions are often used inter-changeably. For example,definitions of regression—a technique sometimes used in forecasting—generally statethat its purpose is to explain or "predict."Forecasting is basically based on a number of assumptions:
The past will repeat itself.
As the forecast horizon shortens, forecast accuracy increases.
Forecasting in the aggregate is more accurate than forecasting individualitems.
Forecasts are seldom accurate.William J. Stevenson lists a number of characteristics that are common to a goodforecast:
Easy to use and understand
Cost-effectiveHe also lists the following as the basic steps in the forecasting process:
Determine the forecast's purpose.
Establish a time horizon.
Select a forecasting technique.
Gather and analyze data.
Make the forecast.
Monitor the forecast.Forecasting model range from the simple to the extremely complex. These models areusually classified as being structural or non structural. We will use the forecasting
techniques to project the service demand for Dundee Infrastructure within the next 3years.
Using structural Model
The demand for Dundee city council could be affected by a number of reasons: population size, age groups of population, how far the council will be able toinfluence the people to use their services frequently and some other factors. To try toforecast demands based on such amount of variables may not seem plausible, not onlyhard to collect all the data which related to our variables, but also hard to generate theappropriate model to do our forecasts. Moreover it is not possible to forecast if thereis any cynical variables in the model, especially if the cycle changes.
Forecasting method for the next 3 years on the expected population sizesin particular age groups and demand for services will be made using anon structural model.
ARIMA model is the preferred model when data is limited. Forecasts for the next 3years on the demand for the Dundee council service will not rely on any exogenousvariables at all.
This model is mentioned as Auto Regressive Integrated MovingAverages.
ARIMA (p, d, q) is called as a non-structural model.
 Non-structural model provides a better forecasting in compare to thestructural model and smoothing method.
ARIMA model is used to forecast for long term predictions.Specific data on population sizes for all the age groups and recycling deposit points isrequired from the Dundee City Council. These data is important to find out the previous demand of their services in the recent past years.The possible model may look like:Y =β0 +β1 Population +β2Maintenance + Error TermFive chronological steps to be followed under 
 Box Jenkins Methodology
to estimate asuitable ARIMA (p, d, q) model.

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