EMTSession4Forecasting 31032020 115641am
EMTSession4Forecasting 31032020 115641am
EMTSession4Forecasting 31032020 115641am
Forecasting
• Essential preliminary to effective
planning
• Production planning
© Wiley 2010 6
Forecasting
Qualitative Methods
• Judgment Methods
– Jury of Executive Opinion
– Delphi
• Sales Force Composite
• Users’ Expectation (Surveys)
Jury of Executive Opinion
• Simplest method
• Executives provide an estimate
• Educated guess
• Average of estimates taken
Delphi Method
• Eliminates effects of interactions
between members
• Experts do not need to know who
other experts are
• Delphi coordinator asks for opinions,
forecasts on subject through
questionnaires
Delphi Method, cont
• Develop objective of forecast
• Determine number of participants
• Select and contact participants
• Develop first questionnaire and
submit
• Coordinator analyzes responses
Delphi Method, cont
• Develop second questionnaire based on
results of first
• Share aggregate results of first round
• Analyze responses
• This technique eliminates the effects of
interaction among experts
• Rounds continue until consensus reached
or experts’ opinions cease to change
Sales Force Composite
• Members of the sales force estimate
sales in their own territory
• Regional Sales Managers adjust for
their opinion of the optimism or
pessimism of individual sales people
• General Sales Manager ‘massages’ the
figures to account for new products or
factors others are unaware of
Users’ Expectation (Market
research)
• When small customer base, simplest
method is to ask customers to project
their need for the future period
• Market testing or market surveys
• Information expensive to obtain
• Often customers don’t know their
future need
Qualitative Methods
Type Characteristics Strengths Weaknesses
Executive A group of managers Good for strategic or One person's opinion
opinion meet & come up with new-product can dominate the
a forecast forecasting forecast
© Wiley 2010 17
Time Series Patterns
© Wiley 2010 18
Time Series Models
• Naive: Ft 1 At
– The forecast is equal to the actual value observed during
the last period – good for level patterns
• Simple Mean: Ft 1 A t / n
– The average of all available data - good for level patterns
• Moving Average: Ft 1 A t / n
– The average value over a set time period
(e.g.: the last four weeks)
– Each new forecast drops the oldest data point & adds a
new observation
– More responsive to a trend but still lags behind actual data
© Wiley 2010 19
Simple Moving Average
• Forecast Ft is average of n previous
observations or actuals At :
weight
1/n
n ... 3 2 1
today
Time Series Models con’t
• Weighted Moving Average:
Ft 1 Wt A t
F n 1 A n (1 ) A n 1 (1 ) A n 2
Exponential Smoothing:
• Include all past observations
• Weight recent observations much more heavily
than very old observations:
weight 0 1
Decreasing weight given
to older observations
(1 )
(1 )2
(1 ) 3
today
Exponential Smoothing:
• Thus, new forecast is weighted sum of old forecast
and actual value
• Notes:
– Only 2 values (An and Fn ) are required, compared with n
for moving average
– Parameter determined empirically (whatever works best)
– Rule of thumb: < 0.5
– Typically, = 0.2 or = 0.3 work well
Regression Analysis
Dependent
variable
y’ = b0 + b1X ± є
variable (y) є
Dependent
B1 = slope
b0 (y intercept) = ∆y/ ∆x
© 2010 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved.
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Department, Pearson Education, Inc., Upper Saddle River, NJ 07458.
What’s Prediction
If you know something about X, this knowledge
helps you predict something about Y.
Simple Linear Regression
Observation: y
Prediction: ^y
Dependent
variable
Zero
Independent variable (x)
Prediction
error: ε
Observation: y
^
Prediction: y
Zero
Dependent
variable
y = A + β X + β X + … + β k Xk + ε
1 1 2 2
• Make forecasts
• Expert opinions
• Consumer intentions
Technological Forecasting
• Which technologies will be available in
the future
– Part of planning as this is the context in which
plans will operate or be implemented
• Delphi Method
• Internet
– Cookies
– Demographics
– Trends
Strategies for Managing
Technology
• Invention and Innovation
• Entrepreneurship
– Intrapreneurship
• Managing Technological Change
– E.g. advent of the Internet
• Government Regulations