ISDS CH 4 Flashcards
forecasting:
the process of predicting a future event
underlying basis of all business decisions
production, inventory, personnel, facilities
forecasting time horizons
1) short range forecast
2) medium-range forecast
3) long- range forecast
short range forecast
up to 1 year, generally less than 3 months; purchasing, job scheduling, workforce levels, job assignments, production level
medium range forecast
3 months to three years; sales and production planning, budgeting
Long range forecast
3 or more years; new product planning, facility location, capital expenditures, research and development
distinguishing differences between time horizons
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
types of forecasting
1) economic forecasts
2) technological forecasts
3) demand forecasts
economic forecasts:
address business cycle (inflation rate, money, supply, etc.)
technological forecasts:
predict rate of technological progress, impacts development of new products
demand forecasts:
predict sales or existing products and services
7 steps of forecasting:
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
qualitative forecasting approaches:
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
jury of executive opinion:
-pool opinions of high level experts, sometimes augmented by statistical models
- relatively quick; group think disadvantage; group est. demand by working together
delphi method:
-band of experts, queries iteratively
- iterative group process, continued until consensus is reached
- 3 types of participants: decision makers, staff, respondents
sales force composite:
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
market survey
- 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
quantitative forecasting methods:
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
time- series forecasting
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
trend component
persistent, overall upward/ downward pattern; changes due to population, technology, age, culture; typically several years duration
seasonal component
regular pattern of up and down fluctuations; due to weather, customs; occurs with in a single year
cyclical component
repeating up and down movements; affected by business cycle, political and economic factors; multiple years duration; often casual/ associative relationships
random component
erratic, unsystematic, residual fluctuations; due to random variation or unforeseen events; short duration and non repeating
