UNIVERSAL COLLEGE OF PARAÑAQUE

8273 Dr. A. Santos Avenue, Parañaque City

FORECASTING

(GROUP 4)

MAGSIPOC, KIT ASHLEY

DIZON, REINA MARIE

LEGASPI, VINCE

MUELAN, RENELYN

ELIGINO, DONNA KAREN

 Table of Contents

Introduction ……………………………………………………….....1

Forecasting …………………………………………………………..2

Forecasting Time Horizon

Forecasting Approaches …………………………………………..3

Types of Forecasts

Naive Forecasts ……………………………………………………..4

Techniques for Averaging

Sources of Forecast Error

Common Measures of Error

Associative Forecasting …………………………………………...5

 INTRODUCTION

This provides an overview on why do we need forecasts, who makes forecasts, what are the
ingredients for good forecasting, what is good judgement, the forecasting processes, and
what are the forecasting methods that we used. A forecast is an estimate of the future level
of some variable. That variable is most often demand but could also be supply or price.
Most companies forecast in order to help the firm in strategic planning activities such as
inventory purchasing, capacity planning, labour planning, etc.

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 FORECASTING

Forecasting is a process of predicting a future event.

Underlying basis of all business decisions:

- Production
- Inventory
- Personnel
- Facilities

Forecasting Time Horizons

• Short-range forecast

o Up to 1 year, generally less than 3 months.

o Purchasing, job scheduling, workforce levels, job assignments, production levels.
o Tend to be more accurate than longer-term forecasts.

• Medium-range forecast

o 3 months to 3 years
o Sales and production planning, budgeting

• Long-range forecast

o 3+ years
o New product planning, facility location, research and development

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Forecasting Approaches

• Qualitative Forecasting
o Used when situation is vague and little data such as new products, new
technology.
o Involves intuition, experience

• Quantitative Forecasting
o Used when situation is ‘stable’ and historical data exist.
o Involves mathematical techniques.

Types of Forecasts

• Judgmental – uses subjective inputs

• Executive Opinion

• Sales Force Opinion

• Consumer Surveys

• Outside Opinion

• Delphi Method

• Time Series – uses historical data assuming future will be like the past.

• Trend – long term movement in data.

• Seasonality – short-term regular variations in data.

• Cycle – wavelike variations of more than one year’s duration.

• Irregular Variations – caused by unusual circumstances.

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 • Random Variations – caused by chance.

• Associative Models – uses explanatory variables to predict the future.

Naive Forecasts

- The forecast for any period equals the previous period’s actual value.

Techniques for Averaging

- Moving Average - MA is a series of arithmetic means

- Weighted Moving Average - used when some trend might be present
- Exponential Smoothing - Form of weighted moving average, most recent data weighted
most.

Sources of Forecast Error

- Model may be inadequate

- Irregular Variations
- Incorrect Use of forecasting technique

Common Measures of Error

- Mean Absolute Deviation (MAD)

- Mean Squared Error (MSE)

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Associative Forecasting

- Used when changes in one or more independent variables can be used to predict the
changes in the dependent variable.

o Predictor Variables – used to predict values of variable interest

o Regression – technique for fitting a line to a set of points
o Least Square Lines – minimizes sum of squared deviations around the line