Forecasting: Optimization and Objective Function
FORECASTING
Managers are always trying to reduce uncertainty and make better estimates of what will happen in the future; this is the main purpose of forecasting. Some firms use subjective methods, seat-of-the pants methods, intuition, and experience. There are also several quantitative techniques, moving averages, exponential smoothing, trend projections, and least squares regression analysis.
Eight steps to forecasting:
* Determine the use of the forecast—what objective are we trying to obtain? * Select the items or quantities that are to be forecasted * Determine the time horizon of the forecast * Select the forecasting model or models * Gather the data needed to make the forecast * Validate the forecasting model * Make the forecast * Implement the results
These steps are a systematic way of initiating, 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.
Regression Analysis
Multiple
Regression
Moving
Average
Exponential Smoothing
Trend
Projections
Decomposition
Delphi Methods
Jury of Executive Opinion
Sales Force
Composite
Consumer Market Survey
Time-Series Methods
Qualitative
Models
Causal
Methods
Forecasting Techniques
Time-series models attempt to predict the future based on the past. The common time-series models are… * Moving average * Exponential smoothing * Trend projections * Decomposition
Regression analysis is used in trend projections and one type of decomposition model.
Causal models use variables or factors that might influence the quantity being forecasted. The objective is to build a model with the best statistical relationship between the variable being forecast and the independent variables.
Managers are always trying to reduce uncertainty and make better estimates of what will happen in the future; this is the main purpose of forecasting. Some firms use subjective methods, seat-of-the pants methods, intuition, and experience. There are also several quantitative techniques, moving averages, exponential smoothing, trend projections, and least squares regression analysis.
Eight steps to forecasting:
* Determine the use of the forecast—what objective are we trying to obtain? * Select the items or quantities that are to be forecasted * Determine the time horizon of the forecast * Select the forecasting model or models * Gather the data needed to make the forecast * Validate the forecasting model * Make the forecast * Implement the results
These steps are a systematic way of initiating, 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.
Regression Analysis
Multiple
Regression
Moving
Average
Exponential Smoothing
Trend
Projections
Decomposition
Delphi Methods
Jury of Executive Opinion
Sales Force
Composite
Consumer Market Survey
Time-Series Methods
Qualitative
Models
Causal
Methods
Forecasting Techniques
Time-series models attempt to predict the future based on the past. The common time-series models are… * Moving average * Exponential smoothing * Trend projections * Decomposition
Regression analysis is used in trend projections and one type of decomposition model.
Causal models use variables or factors that might influence the quantity being forecasted. The objective is to build a model with the best statistical relationship between the variable being forecast and the independent variables.