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Demand Forecasting

1 Qualitative forecasts

Definition
Estimating method that relies on expert human judgment combined with a rating scale,
instead of on hard (measurable and verifiable) data.

QUALITATIVE FORECASTING METHODS


qualitative forecasting methods are based on educated opinions of appropriate persons
1. delphi method: forecast is developed by a panel of experts who anonymously answer
a series of questions; responses are fed back to panel members who then may change
their original responses
- very time consuming and expensive
- new groupware makes this process much more feasible
2. market research: panels, questionnaires, test markets, surveys, etc.
3. product life-cycle analogy: forecasts based on life-cycles of similar products,
services, or processes
4. expert judgement by management, sales force, or other knowledgeable persons

2 *Time Series Analysis

TIME SERIES FORECASTING METHODS


time series forecasting methods are based on analysis of historical data (time series: a set
of observations measured at successive times or over successive periods). They make the
assumption that past patterns in data can be used to forecast future data points.
1. moving averages (simple moving average, weighted moving average): forecast is
based on arithmetic average of a given number of past data points
2. exponential smoothing (single exponential smoothing, double exponential smoothing):
a type of weighted moving average that allows inclusion of trends, etc.
3. mathematical models (trend lines, log-linear models, Fourier series, etc.): linear or
non-linear models fitted to time-series data, usually by regression methods
4. Box-Jenkins methods: autocorrelation methods used to identify underlying time series
and to fit the "best" model

3 Smoothing Technique
DOUBLE EXPONENTIAL SMOOTHING
(TREND-ADJUSTED EXPONENTIAL SMOOTHING)
when a trend exists, the forecasting technique must consider the trend as well as the series
average ignoring the trend will cause the forecast to always be below (with an increasing
trend) or above (with a decreasing trend) actual demand
double exponential smoothing smooths (averages) both the series average and the trend

4 Barometric Methods
Barometric Techniques or Lead-Lag indicators method: This consists in discovering a
set of series of some variables which exhibit a close association in their movement over a
period or time.
Generally, this barometric method has been used in some of the developed countries for
predicting business cycles situation. For this purpose, some countries construct what are
known as ‘diffusion indices’ by combining the movement of a number of leading series in
the economy so that turning points in business activity could be discovered well in
advance. Some of the limitations of this method may be noted however.

5. Econometric Methods
Econometrics is a form of economic analysis that uses a variety of complex statistical
techniques, regression analysis chief among them, to empirically measure and analyze
business and economic phenomena