FORECASTING

A forecast is an estimate about the future value of

a variable such as demand. The better the
estimate, the more informed decisions can be.

Forecasts are a basic input in the

decision processes of operations
management because they provide
information on future demand.
 The primary goal of
operations
management is to match
supply
to demand.
 Summarizing Forecast Accuracy
Three commonly used measures for summarizing historical
errors are the mean absolute deviation (MAD) , the mean squared
error (MSE) , and the mean absolute percent error (MAPE) .
MAD is the average absolute forecast error,
MSE is the average of squared forecast errors, and
MAPE is the average absolute percent error.
FORECASTING TECHNIQUES
Qualitative techniques
permit inclusion of soft information (e.g., human factors,
personal opinions, hunches) in the forecasting process.

Quantitative techniques
consist mainly of analyzing objective, or hard, data. They
usually avoid personal biases that sometimes contaminate
qualitative methods.
2 MAJOR QUANTITATIVE APPROACHES
Time-series Techniques
simply attempt to project past experience into the future.

Associative Techniques
use equations that consist of one or more explanatory variables that
can be used to predict demand.
CHOOSING A FORECASTING
TECHNIQUE
Control chart - a visual tool for monitoring forecast
errors.

The two most important factors are cost and

accuracy.
How much money is budgeted for generating the
forecast?
What are the possible costs of errors, and what are
the benefits that might accrue from an accurate