05 Forecasting

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Chapter 5

Forecasting

To accompany
Quantitative Analysis for Management, Tenth Edition, by Render, Stair, and Hanna
Power Point slides created by Jeff Heyl

© 2008 Prentice-Hall, Inc.
© 2009 Prentice-Hall, Inc.

Introduction n Managers are always trying to reduce

uncertainty and make better estimates of what will happen in the future n This is the main purpose of forecasting n Some firms use subjective methods n Seat-of-the pants methods, intuition, experience n There are also several quantitative techniques n Moving averages, exponential smoothing, trend projections, least squares regression analysis` © 2009 Prentice-Hall, Inc.

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Introduction n Eight steps to forecasting :

1. Determine the use of the forecast—what objective are we trying to obtain?
2. Select the items or quantities that are to be forecasted 3. Determine the time horizon of the forecast
4. Select the forecasting model or models
5. Gather the data needed to make the forecast 6. Validate the forecasting model
7. Make the forecast
8. Implement the results
© 2009 Prentice-Hall, Inc.

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Introduction n These steps are a systematic way of initiating,

n

n n n n designing, and implementing a forecasting system When used regularly over time, data is collected routinely and calculations performed automatically There is seldom one superior forecasting system
Different organizations may use different techniques Whatever tool works best for a firm is the one they should use
Assumptions
n The future event is determined by the past. n Past data are available
© 2009 Prentice-Hall, Inc.

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Forecasting Models
Forecasting
Techniques
Qualitative
Models

Time-Series
Methods

Causal
Methods

Delphi
Methods

Moving
Average

Regression
Analysis

Jury of Executive
Opinion

Exponential
Smoothing

Multiple
Regression

Sales Force
Composite

Trend
Projections

Consumer
Market Survey

Decomposition

Figure 5.1

© 2009 Prentice-Hall, Inc.