MBA – Industry Collaborated Programs

BusinessV Analytics (BA)

Business Analytics DISCOVER . LEARN .

Unit-III EMPOWER 1
 Topics
1. Forecasting Introduction
2. Forecasting Process
3. Qualitative method - Delphi Method
4. Quantitative method - Time Series Modelling

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 Forecasting
• Forecasting is the process of making estimations of predictions of the
future, based on past and present data and most commonly by analysis of
trends, using sophisticated statistical models.
• Forecasting is an Operational Research technique used as basis of
management planning and decision taking.
• Managers require good forecasts of future event.
• Connected with future events and helps in planning.
• Forecasts are more accurate for grouped data than for individual items
• Forecasts are more accurate for shorter than longer periods
• Personal observations also help in forecasting

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 Forecasting Applications
Supply chain Customer demand
Economic forecasting Earthquake prediction
management planning

Player performance in
Land use forecasting Political forecasting Product forecasting
sports

Sales forecasting Technology Forecasting Weather forecasting Transport planning

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 Forecasting – Process Steps

Monitor
Define
Data Forecast Generate forecast
Forecasting
Preparation Modeling forecast accuracy
Objectives
over time

• Level of detail • Establish time horizon • Select and test model on • Gather and analyze • Refine forecast in light of
• Unit of analysis • Identify needed data cost , ease of use and appropriate data deviation
• Check for available data accuracy • Prepare forecast
• Evaluate data
• Analyze data

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 Type of Forecasting Methods
Qualitative Methods Quantitative Methods
Characteristics Based on human judgement Based on mathematics
Subjective and nonmathematical

Strengths Incorporates latest changes in Consistent and objective

environment and inside information

Weakness Can bias the forecast reducing its At times quantifiable data is not available. Is as good
accuracy as the data on which it is based

Applicability When past data is not available When past numerical data is available

Duration Intermediate or long-range decisions Short or intermediate range decisions

Examples Grass root • Time Series Model

Market Research o Moving Average
Delphi Method o Simple Exponential Smoothing
Historical Life cycle analogy o Trend Projections
Consumer survey • Causal models
Panel Consesus o Regression Analysis

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 Qualitative Methods
Type Characteristics Strengths Weaknesses
Executive opinion A group of managers meet & Good for strategic or One person's opinion can
produce a forecast new-product forecasting dominate the forecast

Market research Uses surveys & interviews to Good determinant of It can be difficult to
identify customer preferences customer preferences develop a good
questionnaire
Delphi method Seeks to develop a consensus Excellent for forecasting Time consuming to
among a group of experts long-term product develop
demand, technological
changes, and scientific
advances

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 Delphi Method
• Structured communication technique, which is systematic and
interactive and relies on panel of experts.
• Invented by Olaf Helmer and Norman Dalkey of the Rand Corporation in
the 1950s for the purpose of addressing a specific military problem
• Method relies on the key assumption that forecasts from a group are
generally more accurate than those from individuals.
• The aim of the Delphi method is to construct consensus forecasts from a
group of experts in a structured iterative manner
• A facilitator is appointed in order to implement and manage the process.

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 Delphi Method-Stages
A panel of experts is assembled.

Forecasting tasks/challenges are set and distributed to the experts. Initial contributions
are collected in form of answers to questionare

Experts return initial forecasts and justifications. These are compiled and summarized in
order to provide feedback. Participants anonymity is maintained.

Feedback is provided to the experts, who now review their forecasts considering the
feedback. This step may be iterated until a satisfactory level of consensus is reached.

Final forecasts are constructed by aggregating the experts’ forecasts.

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 Delphi method-Applications
• Science and technology forecasting
• Business forecasting
• Policy making
• High business impact decision
• Useful for problems whose solutions are not found and
depends on opinions of experts
• Popular choice when anonymity of forecasters is preferred.

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 Quantitative Methods

TIME SERIES TREND STRAIGHT MOVING NAÏVE

MODELING ANALYSIS LINE AVERAGES FORECASTING

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 Time series modelling
• Time series methods use historical data as the
basis of estimating future outcomes.
• Time Series is an ordered sequence of values
of a variable at equally spaced time intervals
– E.g. historical data on sales, inventory,
customer accounts , interest rates, costs etc.
• Timeseries could be discrete or continuous
• Time series analysis involves prediction being
function of time and involves no causal
variable

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 Time series Components
Mathematically, a time series is given as
yt = f (t)
Here, yt is the value of the variable under study at time t0. Based on the patterns there are four time series
components
1.Trend, which describe the movement along the term i.e. long-term, gradual increase or decrease of the variable Y.
• Linear
• Non Linear

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 Time series Components
2. Cyclical fluctuations, which correspond to periodical but
not seasonal variations i.e. a gradual, long-term, up-and-
down potentially irregular swings of the variable Y

3. Seasonal variation which represent seasonal changes and

are regular, relatively short-term repetitive up-and-down
fluctuations of the variable Y. For much business and
economic data, the seasonal component is measured in
quarters of the year, literally the four seasons of Winter,
Spring, Summer, and Fal

4. Irregular variations, which are other nonrandom sources

of variations of series and are random increase or decrease
of the variable Y for a specific time period.

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Time series Applications

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Reference
Text Books –

1. Business Analytics; By James Evans

2. Changing Business with Data Insight, IBM Career Education
3. IBM Cognos Insight: Analyze and Share Data, IBM Career Education
Reference Books –
1. Competing on Analytics: The New Science of Winning;Jeanne G. Harris and Thomas H.
Davenport; Harvard Business Review Press; 1 st Edition (2010)
2. Fundamentals of Business Analytics; SeemaAcharya, R.N. Prasad; Publisher: Wiley India Pvt
Ltd; 1 st Edition (2011)

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