Chapter 3: Forecasting ● Forecast accuracy decreases as

time horizon increases

Forecast
● A statement about the future value Elements of a Good Forecast
of a variable of interest such as ● Timely
demand. ● Reliable
● Forecasting is used to make ● Accurate
informed decisions. ● Meaningful
● Long-range ● Written
● Short-range ● Easy to use
● Forecasts affect decisions and
activities throughout an organization Steps in the Forecasting Process
○ Accounting, finance 1. Determine the purpose of forecast
○ Human resources 2. Establish a time horizon
○ Marketing 3. Select a forecasting technique
○ MIS 4. Obtain, clean, and analyze data
○ Operations 5. Make the forecast
○ Product / service design 6. Monitor the forecast

Uses of Forecast Types of Forecasts

● Judgmental - uses subjective inputs
Accounting Cost/profit estimates
● Time series - uses historical data
Finance Cash flow and assuming the future will be like the
funding past
● Associative models - uses
Human hiring/recruiting/
explanatory variables to predict the
Resources training
future
marketing Pricing, promotion,
strategy Judgmental Forecasts
● Executive opinions
MIS IT/IS systems,
● Sales force opinions
services
● Consumer surveys
operations Schedules, MRP, ● Outside opinion
workloads ● Delphi method
○ Opinions of managers and
Product/Service New products and
staff
Design services
○ Achieves a consensus
forecast
Features of Forecasts
● Assumes causal system past ==> Time Series Forecasts
future ● Trend - long-term movement in data
● Forecasts rarely perfect because of ● Seasonality - short-term regular
randomness variations in data
● Forecasts more accurate for groups
vs. individuals
● Cycle – wavelike variations of more
than one year’s duration
● Irregular variations - caused by
unusual circumstances
● Random variations - caused by
chance