Production & Operations Management
Forecasting
Forecast can help managers by reducing some of the uncertainty, thereby enabling them to develop more meaningful plans than they might otherwise.
A forecast is a statement about the future.
Features common to all forecasts
1. The same underlying causal system that existed in the past will continue to exist in the future.
2. Forecasts are rarely perfect; actual results usually differ from predicted values.
3. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
Forecast accuracy decreases as the time period covered by the forecast-the time horizon-increases.
Steps in the Forecasting Process
There are five basic steps in the forecasting process:
1. Determine the purpose of the forecast and when it will be needed. This will provide an indication of the level of detail required in the forecast, the amount of resources (manpower, computer time, dollars) that can be justified, and the level of accuracy necessary.
2. Establish a time horizon that the forecast must cover, keeping in mind that accuracy decreases as the time horizon increases.
3. Select a forecasting technique.
4. Gather and analyze the appropriate data, and then prepare the forecast. Identify any assumptions that are made in conjunction with preparing and using the forecast.
5. Monitor the forecast to see if it is performing in a satisfactory manner. If it is not, reexamine the method, assumptions, validity of data, and so on; modify as needed; and prepare a revised forecast.
There are two general approaches to forecasting:
Qualitative:
Judgmental methods:
Consumer surveys Questioning consumers on future plans.
Sales force composites Joint estimates obtained from salespeople.
Executive opinion Finance, marketing, and manufacturing managers join to prepare forecast.
Delphi technique Series of questionnaires answered anonymously by managers and staff; successive questionnaires are based on information obtained from
Forecast can help managers by reducing some of the uncertainty, thereby enabling them to develop more meaningful plans than they might otherwise.
A forecast is a statement about the future.
Features common to all forecasts
1. The same underlying causal system that existed in the past will continue to exist in the future.
2. Forecasts are rarely perfect; actual results usually differ from predicted values.
3. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
Forecast accuracy decreases as the time period covered by the forecast-the time horizon-increases.
Steps in the Forecasting Process
There are five basic steps in the forecasting process:
1. Determine the purpose of the forecast and when it will be needed. This will provide an indication of the level of detail required in the forecast, the amount of resources (manpower, computer time, dollars) that can be justified, and the level of accuracy necessary.
2. Establish a time horizon that the forecast must cover, keeping in mind that accuracy decreases as the time horizon increases.
3. Select a forecasting technique.
4. Gather and analyze the appropriate data, and then prepare the forecast. Identify any assumptions that are made in conjunction with preparing and using the forecast.
5. Monitor the forecast to see if it is performing in a satisfactory manner. If it is not, reexamine the method, assumptions, validity of data, and so on; modify as needed; and prepare a revised forecast.
There are two general approaches to forecasting:
Qualitative:
Judgmental methods:
Consumer surveys Questioning consumers on future plans.
Sales force composites Joint estimates obtained from salespeople.
Executive opinion Finance, marketing, and manufacturing managers join to prepare forecast.
Delphi technique Series of questionnaires answered anonymously by managers and staff; successive questionnaires are based on information obtained from