Ch. 4 Flashcards
Process of predicting the future as accurately as possible, given all of the information available.
Forecasting
What is the goal of forecasting?
Come as close as possible to an accurate picture of the future.
What are the principles of forecasting?
Should be an integral part of the decision making activities of management.
What are common forecasting time horizons?
Short-range, Medium-range, and long-range forecasts.
What is the influence of the product life cycle of forecasting?
Key input for production planning, but demand is influenced by the stage of your product’s life cycle.
Activity of estimating the quantity of a products or service that consumers will purchase.
Demand forecasts
Consider several variables that are related to the quantity being predicted.
Associative forecasting
What is the first step when making a forecast?
Determine the use of the forecast
5 basic steps when making a forecast?
Determine the use, determine horizon, select forecasting models, gather data, generate the forecast.
What are two factors used to determine forecasting model?
If there is data available use quantitative, if no data, use qualitative.
What are two basic groups of forecasting methods?
Qualitative & Quantitiave
What are 3 ways forecasting models differ?
Time horizon, amount of data needed, and number of variables.
Someone who predicts their own sales
Composite forecasting method
What are 3 common qualitative methods?
Jury of executive opinion, Delphi method, sales force composite.
What is a major weakness with using executive opinion from a meeting
to develop a forecast?
Groupthink
Which forecasting method suffers from the possibility of having one
person’s opinion dominate the forecast?
Jury of Executive Opinion
What method is especially useful for forecasting long-term product
demand and technological changes?
Delphi method
What are the two categories of quantitative forecasting methods?
Naive approach, moving averages, exponential smoothing, trend projection, linear regression.
Forecast based only on past values, no other variables important
Time-series forecasting
What are four basic data patterns?
Trend, seasonal, cycles, and random variations
When should multiple regression be used for forecasting?
Good to use when there are multiple independent variables.
Assume that the demand in the next period will be equal to the demand in the most recent period.
Naive approach
What is the problem with using a moving average to forecast a pattern
with a trend?
Does not forecast trends well, requires extensive data
If we have a smaller number of observations in a moving average, is the
forecast more or less responsive to changes in the data?
more responsive
What is the sum of all weights in a weighted moving average?
Weights and demand for the period
What is the general equation for a linear trend line?
y=a+bx
How strong is the linear relationship between the variables?
Correlation
When should multiple regression be used for forecasting?
If there is more than one independent variable.
What are common measures of forecasting error?
Comparing forecasting values with the actual values.
What are three common criteria for selecting forecasting packages?
Accuracy, timeliness, cost savings
What are general principles for selecting forecasting methods?
Use simple methods unless substantial evidence exists that complexity helps, match forecasting methods to situation, use structured rather than unstructured methods.
