FORECASTING

Kusdhianto SetiawanGadjah Mada University

Steps of forecasting

• Determine objectives of forecasting• Select the items or quantities that are to

be forecasted• Determine the time horizon• Select the forecasting model/s• Gather data• Validate the model/s• Make the forecast• Implement the result

Type of forecasts

• Time series• Causal models• Qualitative models

• Delphi method• Groups of experts in different locations make forecasts,

involving 3 participants; decision making group, staff personnel, respondents

• Jury of Executive opinion; often involving high level managers, statistical models, estimate demand

• Sales force composite• Consumer market Survey

Tools...

• Scatter Diagram...

Measures of Accuracy

• Forecast error (deviation) = actual value – forecast value

• Mean Absolute Deviation (MAD)• MAD = ∑|forecast error|/n

Time Series Models

• Decomposition of a Time Series:• Trend (T)• Seasonality (S)• Cycles (C)• Random Variation (R)

• Models:• Multiplicative; Demand=(TxSxCxR)• Additive; Demand=(T+S+C+R)

Moving Averages

Moving Average = ∑ demand in previous n periods/n

Weighted MA= ∑(weight for period n)/(demand in period n)

∑ weights

Exponential Smoothing

• New Forecast =last period’s forecast +α (last period’s actual demand – last period’s forecast)

Ft = Ft-1 + α (At-1 – Ft-1)

Trend Projections

• Least Squares Method

bXaY ˆ

XbYa

XnX

YXnXYb

22

Seasonal Variations

• See page 160

Tasks to prepare for the EXAM !• Continue reading the materials up to

the end of this chapter !• Combine your knowledge on statistics,

econometrics, and other subjects relevant to this study !