FORECASTING

Haunan Damar

Universitas Dian Nuswantoro

Forecasting
1. Heizer and Render define forecasting as the art and science in
predicting future occurrences. Forecasting can use
mathematical models by taking historical data and then
projecting it.
2. There are three periods in a forecasting:
1. Short term forecasting : usually less than 1 year
2. Medium term forecasting : 1-3 years
3. Long term forecasting : more than 3 years
Seven steps in forecasting
No. Steps
1. Determine the objective of forecasting

2. Choose the items that will be used for

forecasting
3. Determine the forecasting time period
4. Choose appropriate forecasting method

5. Gather data needed

6. Create the forecasting
7. Validate and implement the result
7 steps in determining forecast

No. Steps Activity example

1. Determine the objective of 1. To prepare production plan for the next 1 year
forecasting
2. Units produced, production cost, selling price, labor cost
2. Choose the items that will be used
for forecasting
3. Past 1 year period
3. Determine the forecasting time
period
4. Qualitative by using the market survey, quantitative by
4. Choose appropriate forecasting using moving average method.
method 5. Data needed: units produced last year, production cost last
year, selling price last year, labor cost last year
5. Gather data needed
6. Create the forecasting
6. Analysis of forecast using the selected method
7. Validate and implement the result
7. Make production plan based on the forecast result
Forecasting Approach
1. Qualitative methods
• Experts opinion
• Delphi method
• Sales estimate
• Market survey
2. Quantitative methods
• Naive
• Moving average
• Exponential smoothing
• Trend projection
• Linear regression
Qualitative Approach
Delphi method

• A technique of structure
communication which relies
on a panel of experts to gain
collective knowledge.
Quantitative Approach

Naïve method Bulan Penjualan

Aktual
Peramalan

Jan 20 10 -
Naïve method shows a projection of sales Feb 12 10
forecast by taking the value of actual sales in Mar 13 12
the last period.
Apr 16 13
Mei 19 16
For example: Jun 23 19
The sales of Big Berry is as follows. Predict Jul 26 23
the sales of Big Berry on January 2021 by Aug 30 26
using naïve method! Sep 28 30
Answer: 14 Oct 18 28
Nov 16 18
Dec 14 16
Jan 21 - ???
Months Actual sales Forecast
If projected on graphs, the naïve method of forecasting will look like the
Jan 20 10 - following:
Feb 12 10
Mar 13 12
Forecast Metode Naif
Apr 16 13 35
Mei 19 16
30 30 30
Jun 23 19 28 28
26 26
25
Jul 26 23 23 23
20
Aug 30 26 19 19
18 18
16 16 16 16
Sep 28 30 15
14 14
13 13
12 12
Oct 18 28 10 10 10

Nov 16 18 5
Dec 14 16
0
Jan-20 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-21
Jan 21 - ???
Aktual Ramalan
Quantitative approach
Moving Average

• Moving average uses historical data to create forecasting result

• It is best used when we can assume the demand is relatively stable

Moving Average

• Where n = the moving average period, for example, 3 months and 6

months moving average
 Question Bulan Penjualan
Data on the table shows actual sales of a company. Can
Januari 215
you predict the sales in July by using the 3-month moving Februari 222
average method? Maret 235
April 228
Mei 210
Juni 240

ANSWER
Month Sales Forecast

January 215 -
If n=3, we start the moving
February 222 - average forecast on the 4th
month.
March 235 -

April 228 (215+222+235) / 3 = 224

May 210 (222+235+228) / 3 = 228,33

June 240 (235+228+210) / 3 = 224,33

July ??? (228+210+240) / 3 = 226

• In forecasting, the result obtained will never be the same as the
actual data (coincidence). The difference between actual and
forecasted value is known as forecast error. A good forecast has a
smaller error.
Forecast error = Actual demand - Forecast value
= At - Ft
• Deviation is the value which shows how far a projected forecast is
different than the actual data.
 Month Actual sales Forecasted sale Deviation
(actual-forecast)
January 215 -
February 222 -
March 235 -
Deviation shows the
April 228 (215+222+235) / 3 = 224 (228 – 224) = 4
difference between
May 210 (222+235+228) / 3 = 228,33 (210 - 228,33) = 18,33 forecasted value and
June 240 (235+228+210) / 3 = 224,33 (240 – 224,33) = 15,67 actual value.
July ??? (228+210+240) / 3 = 226
∑ (total/deviation sigma) 38

MAD = Mean Absolute Deviation

MAD is a measure used to determine error in forecasting. The formula MAD = 38/3 (n = 3 )
is ∑deviation/n. = 12,67

MSE = Mean Squared Error

MSE is the difference between forecasted value and the observed MSE = (+ + ) / 3
(actual) value after being doubled (Squared). MSE result is supposedly = 199,19
more stable towards data change compared to MAD. The formula is
∑/n.
Exercise: Find the value of A1, A2, A3, A4, B1, B2, B3, and C1!

Month Sales Forecast Deviation

Januari 511 -

Februari 560 -

Maret 528 -

April 540 A1 B1

Mei 570 A2 B2

Juni 556 A3 B3

Juli ??? A4
∑deviasi C1