3-1 Forecasting

Requirements of a Good Forecast

Timely

Reliable Accurate

l s e
g fu u
i n Written to
n s y
a
M
e Ea
3-2 Forecasting

Requirements of a Good Forecast

1. Timely
2. Reliable
3. Accuracy
4. Meaningful Forecast
5. Written/Documented
6. Simple to understand and use
3-3 Forecasting

Steps in the Forecasting Process

“The forecast”

Step 6: Monitor the forecast

Step 5: Prepare the forecast
Step 4: Gather and analyze data
Step 3: Select a forecasting technique
Step 2: Establish a time horizon
Step 1: Determine purpose of forecast
3-4 Forecasting

Steps in the Forecasting Process

1. Determine the purpose of the forecast.

2. Establish a time horizon.
3. Select a forecasting technique.
4. Gather and Analyze the appropriate data.
5. Prepare the forecast.
6. Monitor the forecast.
3-5 Forecasting

Fundamental Types of Forecasts

1. Qualitative Techniques which use

subjective inputs and no numerical
data. It relies solely on soft
information like human factors,
personal opinion, hunches.
3-6 Forecasting

Fundamental Types of Forecasts

2. Quantitative Forecast involves the

extension of the historical data. It
sometimes make use of forecasting
technique that uses explanatory
variables to predict future
demands. Quantitative techniques
are favored where quality attributes
cant be quantified.
3-7 Forecasting

Finer Classification of Forecasts

1. Judgmental - uses subjective inputs

meaning that a judgmental forecast
rely on analysis of subjective inputs
obtained from various sources.
2. Time series - uses historical data
assuming the future will be like the
past and depend on developing
relationships between variables that
can be expressed to predict future
values.
3-8 Forecasting

Finer Classification of Forecasts

3. Associative models - uses explanatory

variables to predict the future for example
demand for a small car may be dependant
upon increase in price of petrol or CNG.
3-9 Forecasting

Judgmental Forecasts Characteristics

1. Judgmental Forecasts rely solely on judgment and
opinion to make forecasts.
2. In the absence of enough time, it is easy to use
qualitative type of forecast.
3. In case of changing external environment economic
and political conditions, organizations may use
judgmental forecasts.
4. When introducing new products , services, new
features, new packaging, judgmental forecasts are
used in preference over quantitative techniques.
 3-10 Forecasting

Types of Judgmental Forecasts

1. Executive opinions normally consists of a group

of senior level managers from different
interfaces.
2. Sales force opinions have the advantage of
being in direct contact with customers.
3. Consumer surveys are based on sample taken
from potential customers.
3-11 Forecasting

Types of Judgmental Forecasts

4. Outside opinion which is a mix of

consumer and potential customers.
5. Delphi method :Managers and staff
complete a series of questionnaires, each
developed from the previous one, to
achieve a consensus forecast.
3-12 Forecasting

Delphi Method
l. Choose the experts to participate representing a
variety of knowledgeable people in different areas
2. Through a questionnaire (or E-mail), obtain
forecasts (and any premises or qualifications for the
forecasts) from all participants
3. Summarize the results and redistribute them to the
participants along with appropriate new questions
4. Summarize again, refining forecast targets and
conditions, and again develop new questions
5. Repeat Step 4 as necessary and distribute the final
results to all participants to indicate that there is
consensus in forecast.
3-13 Forecasting
Time Series Analysis

 Time series forecasting models try to predict the

future based on past data
 We as Managers can pick models based on:
1. Time horizon to forecast
2. Data availability
3. Accuracy required
4. Size of forecasting budget
5. Availability of qualified personnel
3-14 Forecasting

Naïve Forecasts

 Simple to use
 Virtually no cost

 Quick and easy to prepare

 Data analysis is nonexistent

 Easily understandable

 Drawbacks

 Cannot provide high accuracy

 Can be a standard for accuracy