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King Abdulaziz UniversityFaculty of Engineering

Industrial Engineering Dept.

IE 436IE 436

Dynamic ForecastingDynamic Forecasting

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CHAPTER 1 CHAPTER 1 Introduction to ForecastingIntroduction to Forecasting

Some Techniques:Some Techniques: In the nineteenth century. In the nineteenth century.

Some Others:Some Others: only recently. only recently.

Forecasting Process:Forecasting Process: Continue to grow. Continue to grow.

Consumers of forecasts (Managers):Consumers of forecasts (Managers):

More attention to Forecasting.More attention to Forecasting.

The History of ForecastingThe History of Forecasting

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Is Forecasting Is Forecasting Necessary?Necessary?

All organizations operate in uncertainty.All organizations operate in uncertainty.

Decisions affecting the future must be made.Decisions affecting the future must be made.

Judgments are not so accurate.Judgments are not so accurate.

World has always been changing.World has always been changing.

Competition has become more keen.Competition has become more keen.

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Who needs forecasts ?

All types of organizations:

(large-small, private-public).

All functional lines:

(finance, marketing, personnel, production areas)

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Some Questions that need forecasting

Increase advertising by 10% : sales?Increase advertising by 10% : sales?

Over the next 2 years : revenues?Over the next 2 years : revenues?

How many units might we sell?How many units might we sell?

To explain sales variability : To explain sales variability : factors to consider?factors to consider?

Loan balance over the next 10 years?Loan balance over the next 10 years?

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Types of Forecasts

• Time horizon: (long, intermediate, short).

• Level of details: (micro-macro).

• Methods used: (Quantitative-qualitative).

Note: judgment must be used along with quantitative forecasting procedures.

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Range Period Variables to be forecasted

Short Term

1 day to 1 year, )1 season)

Demand forecasting, staffing levels, purchasing, inventory levels

Medium Term

1 season to 2 years

Aggregate planning, capacity planning, sales forecasts

LongTerm

5 and more years into the future

R&D, plant location, product planning

Range of Forecasting

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1. Problem Formulation and1. Problem Formulation and

Data collection.Data collection.

2. Data manipulation and cleaning.2. Data manipulation and cleaning.

3. Model building and evaluation.3. Model building and evaluation.

4. Model implementation4. Model implementation

(the actual Forecast).(the actual Forecast).

5. Forecast evaluation.5. Forecast evaluation.

Forecasting Forecasting StepsSteps

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Forecasting Steps

Data CollectionData Collection

Model evaluation ?

Model evaluation ?

Data Manipulation and cleaningData Manipulation and cleaning

Model implementation(Actual Forecast)

Model implementation(Actual Forecast)

Forecast evaluationForecast

evaluation

Model BuildingModel Building

Forecast UpdatingForecast Updating

Problem FormulationProblem Formulation

NO

NO

Data ReductionData Reduction

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2

3

4

5

Yes

Yes