SESSION 6

FORECASTING - II

Dr Sandeep K. Gupta (PhD, MBA, M.Tech)

Assistant Professor, SME, SNU
 JUDGMENTAL FORECASTING METHODS

• Use expert judgment

• These methods are especially valuable when little or no historical sales data
are available or when major changes in the marketplace make these data
unreliable for forecasting purposes.

1. Manager’s opinion
2. Jury of executive opinion
3. Sales force composite: bottom-up approach
4. Consumer market survey: grass-roots approach
5. Delphi method: long-range forecasts
 DELPHI METHOD
• An iterative process in which managers and staff complete a series of questionnaires, each
developed from the previous one, to achieve a consensus forecast.
• This method involves circulating a series of questionnaires among individuals who possess the
knowledge and ability to contribute meaningfully. Responses are kept anonymous, which tends to
encourage honest responses and reduces the risk that one person’s opinion will prevail.
• Each new questionnaire is developed using the information extracted from the previous one, thus
enlarging the scope of information on which participants can base their judgments.
• Delphi method is useful for technological forecasting, that is, for assessing changes in
technology and their impact on an organization. For exp. Adoption of Roof-top solar technology
 FORECASTS BASED ON TIME-SERIES

Analysis of time-series data requires the

analyst to identify the underlying behavior of
the series. These behaviors can be described
as follows:
• Trend refers to a long-term upward or downward movement in the data. Population
shifts, changing incomes, and cultural changes often account for such movements.
• Seasonality refers to short-term, fairly regular variations generally related to factors
such as the calendar or time of day. Restaurants, supermarkets, and theaters
experience weekly and even daily “seasonal” variations.
• Cycles are wavelike variations of more than one year’s duration. These are often
related to a variety of economic, political, and even agricultural conditions.
• Irregular variations are due to unusual circumstances such as severe weather
conditions, strikes, or a major change in a product or service. They do not reflect
typical behavior, and their inclusion in the series can distort the overall picture.
Whenever possible, these should be identified and removed from the data.
• Random variations are residual variations that remain after all other behaviors have
been accounted for.
 MOVING-AVERAGE FORECASTING
METHODS
• A moving average forecast uses a number of the most recent actual data values in generating a
forecast. The moving average forecast can be computed using the following equation:
EXAMPLE
Moving-average forecasts perform well
for a time series that fluctuates about a
constant base level.
 SIMPLE EXPONENTIAL
SMOOTHING
If a time series fluctuates about a base level, simple exponential smoothing may be used to
obtain good forecasts for future values of the series.
To describe simple exponential smoothing, let Ft smoothed average of a time series after
observing xt. After observing xt, Ft is the forecast for the value of the time series during any
future period. The key equation in simple exponential smoothing is
COMPARISON OF DIFFN METHODS
 ACTIVITY

Calculate a forecast for period 6 using each of these approaches:

a. A three-period moving average.
b. Exponential smoothing with a smoothing constant of 0.4.
USING EXCEL’S MOVING AVERAGE TOOL
USING EXCEL’S EXPONENTIAL
SMOOTHING TOOL