ISDS CH 4

Question 1

forecasting:

Answer 1

the process of predicting a future event

Question 2

underlying basis of all business decisions

Answer 2

production, inventory, personnel, facilities

Question 3

forecasting time horizons

Answer 3

1) short range forecast
2) medium-range forecast
3) long- range forecast

Question 4

short range forecast

Answer 4

up to 1 year, generally less than 3 months; purchasing, job scheduling, workforce levels, job assignments, production level

Question 5

medium range forecast

Answer 5

3 months to three years; sales and production planning, budgeting

Question 6

Long range forecast

Answer 6

3 or more years; new product planning, facility location, capital expenditures, research and development

Question 7

distinguishing differences between time horizons

Answer 7

1) medium/ long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes
2) short term forecasting usually employs different methodologies than longer-term forecasting
3) short- term forecasts tend to be more accurate than longer-term forecasts

Question 8

types of forecasting

Answer 8

1) economic forecasts
2) technological forecasts
3) demand forecasts

Question 9

economic forecasts:

Answer 9

address business cycle (inflation rate, money, supply, etc.)

Question 10

technological forecasts:

Answer 10

predict rate of technological progress, impacts development of new products

Question 11

demand forecasts:

Answer 11

predict sales or existing products and services

Question 12

7 steps of forecasting:

Answer 12

1) determine the use of the forecast
2) select the items to be forecasted
3) determine the time horizon of the forecast
4) select the forecasting model (s)
5) gather data needed to make the forecast
6) make the forecast
7) validate and implement the results

Question 13

qualitative forecasting approaches:

Answer 13

used when situation is vague and there’s little data; involves intuition/ experience
1) jury of executive opinion
2) delphi method
3) sales force composite
4) market survey

Question 14

jury of executive opinion:

Answer 14

-pool opinions of high level experts, sometimes augmented by statistical models
- relatively quick; group think disadvantage; group est. demand by working together

Question 15

delphi method:

Answer 15

-band of experts, queries iteratively
- iterative group process, continued until consensus is reached
- 3 types of participants: decision makers, staff, respondents

Question 16

sales force composite:

Answer 16

est from individual sales people reviewed for reasonable, then aggregated
- each sales person projects his/ her sales
- combined at district and national levels
- sales reps know customers’ wants
-may be overly optimistic

Question 17

market survey

Answer 17

• ask customers about purchasing plans
• useful for demand and product design and planning
• what consumers say and what they actually do may be different
• overly optimistic

Question 18

quantitative forecasting methods:

Answer 18

used when situation is stable and historical data exist; math techniques
1) naive approach
2) moving average
3) exponential smoothing
4) trend projection
5) linear regressions

Question 19

time- series forecasting

Answer 19

set of evenly spaced numerical data obtained by observing response variable at regular time periods; forecast based only on past values, no other variables important; assumes that factors influencing past and present will continue influence in future

Question 20

trend component

Answer 20

persistent, overall upward/ downward pattern; changes due to population, technology, age, culture; typically several years duration

Question 21

seasonal component

Answer 21

regular pattern of up and down fluctuations; due to weather, customs; occurs with in a single year

Question 22

cyclical component

Answer 22

repeating up and down movements; affected by business cycle, political and economic factors; multiple years duration; often casual/ associative relationships

Question 23

random component

Answer 23

erratic, unsystematic, residual fluctuations; due to random variation or unforeseen events; short duration and non repeating