Forecasting Techniques
INDUSTRIAL STATISTICS AND OPERATIONAL MANAGEMENT
6 : FORECASTING TECHNIQUES
Dr. Ravi Mahendra Gor
Associate Dean ICFAI Business School ICFAI HOuse, Nr. GNFC INFO Tower S. G. Road Bodakdev Ahmedabad-380054 Ph.: 079-26858632 (O); 079-26464029 (R); 09825323243 (M) E-mail: ravigor@hotmail.com Contents
Introduction Some applications of forecasting Defining forecasting General steps in the forecasting process Qualitative techniques in forecasting Time series methods The Naive Methods Simple Moving Average Method Weighted Moving Average Exponential Smoothing Evaluating the forecast accuracy Trend Projections Linear Regression Analysis Least Squares Method for Linear Regression Decomposition of the time series Selecting A Suitable Forecasting Method More on Forecast Errors Review Exercise
CHAPTER 6 FORECASTING TECHNIQUES 6.1 Introduction:
Every manager would like to know exact nature of future events to accordingly take action or plan his action when sufficient time is in hand to implement the plan. The effectiveness of his plan depends upon the level of accuracy with which future events are known to him. But every manager plans for future irrespective of the fact whether future events are exactly known or not. That implies, he does try to forecast future to the best of his Ability, Judgment and Experience. Virtually all management decisions depend on forecasts. Managers study sales forecasts, for example, to take decisions on working capital needs, the size of the work force, inventory levels, the scheduling of production runs, the location of facilities, the amount of advertising and sales promotion, the need to change prices, and many other problems. For our purpose forecasting can be defined as attempting to predict the future by using qualitative or quantitative methods. In an informal way, forecasting is an integral part of all human activity, but from the business point of view increasing attention is being given to formal forecasting systems which are
6 : FORECASTING TECHNIQUES
Dr. Ravi Mahendra Gor
Associate Dean ICFAI Business School ICFAI HOuse, Nr. GNFC INFO Tower S. G. Road Bodakdev Ahmedabad-380054 Ph.: 079-26858632 (O); 079-26464029 (R); 09825323243 (M) E-mail: ravigor@hotmail.com Contents
Introduction Some applications of forecasting Defining forecasting General steps in the forecasting process Qualitative techniques in forecasting Time series methods The Naive Methods Simple Moving Average Method Weighted Moving Average Exponential Smoothing Evaluating the forecast accuracy Trend Projections Linear Regression Analysis Least Squares Method for Linear Regression Decomposition of the time series Selecting A Suitable Forecasting Method More on Forecast Errors Review Exercise
CHAPTER 6 FORECASTING TECHNIQUES 6.1 Introduction:
Every manager would like to know exact nature of future events to accordingly take action or plan his action when sufficient time is in hand to implement the plan. The effectiveness of his plan depends upon the level of accuracy with which future events are known to him. But every manager plans for future irrespective of the fact whether future events are exactly known or not. That implies, he does try to forecast future to the best of his Ability, Judgment and Experience. Virtually all management decisions depend on forecasts. Managers study sales forecasts, for example, to take decisions on working capital needs, the size of the work force, inventory levels, the scheduling of production runs, the location of facilities, the amount of advertising and sales promotion, the need to change prices, and many other problems. For our purpose forecasting can be defined as attempting to predict the future by using qualitative or quantitative methods. In an informal way, forecasting is an integral part of all human activity, but from the business point of view increasing attention is being given to formal forecasting systems which are