Introduction To Forecasting

for the Littlefield Simulation

BUAD 311: Operations Management

Forecasting Objectives
Introduce the basic concepts of forecasting
and its importance within an organization.
Identify several of the more common
forecasting methods
Measure and assess the errors that exist in all
forecasts

Managerial Issues
Recognizing the increased importance of
forecasting in both manufacturing and
services.
How to go about implementing forecasting
at all levels in the organization.

Types of Forecasting
Qualitative Techniques
Non-quantitative forecasting techniques based on expert
opinions and intuition. Typically used when there are no
data available.

Time Series Analysis

Analyzing data by time periods to determine if trends or
patterns occur.

Causal Relationship Forecasting

Relating demand to an underlying factor other than time.
(Regression)
4

Causal Relationship
Multiple Regression Models

Simple Linear Regression Model

The
Thesimple
simplelinear
linearregression
regression
model
modelseeks
seeksto
tofit
fitaaline
line
through
throughvarious
variousdata
dataover
over
time
time

Yt = a + bx

a
0 1 2 3 4 5

(Time)

Is
Isthe
thelinear
linearregression
regressionmodel
model

Yt is the regressed forecast value or dependent

variable in the model, a is the intercept value of the the
regression line, and b is similar to the slope of the
regression line. However, since it is calculated with the
variability of the data in mind, its formulation is not as
straight forward as our usual notion of slope.

Simple Linear Regression Formulas for

Calculating a and b

aa == yy-- bx
bx
-- n(y)(x)

xy
n(y)(x)
xy
bb ==
22
22

n(x))
xx -- n(x

Simple Linear Regression Problem Data

Question:
Question:Given
Giventhe
thedata
databelow,
below,what
whatisisthe
thesimple
simplelinear
linear
regression
regressionmodel
modelthat
thatcan
canbe
beused
usedto
topredict
predictsales
salesin
infuture
future
weeks?
weeks?

Week
1
2
3
4
5

Sales
150
157
162
166
177

Answer:
Answer: First,
First, using
using the
the linear
linear regression
regressionformulas,
formulas, we
we
can
cancompute
computea
aand
andb
b

Week Week*Week
Sales Week*Sales
1
1
150
150
2
4
157
314
3
9
162
486
4
16
166
664
5
25
177
885
3
55
162.4
2499
Average
Sum Average
Sum
xy
--5(162.4)(3)
63

xy--n(y)(x)
n(y)(x) 2499
2499
5(162.4)(3)
63= 6.3

bb==
=

=
10 = 6.3
22
22
55

5
(
9
)
x
n(x
)

55 5(9 )
10
x - n(x )
aa== yy--bx
bx==162.4
162.4--(6.3)(3)
(6.3)(3)==143.5
143.5

10

The resulting regression model

is:

Yt = 143.5 + 6.3x

Sales

Now if we plot the regression generated forecasts against the

actual sales we obtain the following chart:
180
175
170
165
Sales
160
155
Forecast
150
145
140
135
1
2
3
4
5
Period