mI SABES CHAPTER 2. FORECASTING. INTRODUCTION Forecasting s the act of predicting something after looking at the information that Is avaiable. (Merriam Webster) Forecasts are the basis for budgeting. planning capacity, sales, production and inventory, personnel, purchasing. and more. Forecasts play an important role in the planning process because they enable managers to anticipate the future co they can plan accordingly Uses of forecasts in: Accounting. New productipracess cost estimates, profit projections, cash management ‘Finance Equipment replacement needs, timing and amount of funding/borrowing needs. Human resources. Wiring activities (recruitment, interviewing, training. layoff planning including ‘outplacement. counseling ‘Marketing. Pricing and promotion, e-business strategies, global competition strategies. ‘Operations: Schedules, capacity planning, work assignments, inventory planning, make-or-buy decisions, outsourcing, project management. Product/service design. Revision of current features, design of new products or services. Forecasting is also an important component of yield management. Accurate forecasts can help managers: plan tactics to match capacity with demand, thereby achieving high yield levels. Two uses for forecasts: 1. Help managers plan the system, Involves long-range plans about the types of products and services to offer. 2. Help managers to plan the use of the system. Refers to short-range and intermediate-range planning, Forecasting is not an exact science. Instead, it requires a skilful blending of art and science. ‘The responsibility for preparing demand forecasts in business organizations lies with marketing or sales rather than operations. ‘dt FEATURES COMMON TO ALL FORECASTS Forecasting techniques generally assume that the same underlying causal system that existed in the past will continue to exist in the future. Forecasts are rarely perfect. Forecasts for groups of items tend to be more accurate than those for individual items. Forecast accuracy decreases as the time period covered by the time horizon increases, at