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SYSTEM DYNAMICS IN BUSINESS
FORECASTING
A CASE STUDY OF THE COMMERCIAL JET
AIRCRAFT INDUSTRY
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INTRODUCTION
•Use of Forecasts in Decision-Making
•The Case Example - Worldwide Commercial Jet Aircraft &
Parts Industry
•System dynamics models
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DECISION-MAKING
Forecasting is essential for many business decisions, such as:
•How much to produce;
•How much capacity and other resources will be required;
• What products should be developed; and
• How much financing will be needed by the business.
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ARE FORECASTS RELIABLE ?
Although models of forecasting widely used, they may not
be always reliable.
•Forecasts are likely to be wrong. (Inaccuracies may occur.)
•Forecasts can contribute to problematic behaviour.
(Forecasts are a part of a system’s decision structure)
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ADDING VALUES OF SYSTEM DYNAMICS MODELS
The proper use of system dynamics models for “forecasting”
can add value to clients.
•More reliable forecasts of short-term to mid-term trends
than statistical models
•Detecting changes in industry Structure
•Determining key sensitivities
•Determination of appropriate buffers and contingencies
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THE CASE EXAMPLE – WORLDWIDE COMMERCIAL JET AIRCRAFT & PARTS INDUSTRY
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MORE RELIABLE FORECASTS IN DYNAMIC MODELS
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MORE RELIABLE FORECASTS IN DYNAMIC MODELS
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MEANS OF DETECTING CHANGES IN INDUSTRY
•If a well calibrated model is capable of providing a very
good short to mid mid-term forecasts, that model becomes a
means of detecting changes in industry structure.
•As new data and other information become available, they
are compared to the model’s forecast.
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MEANS OF DEVELOPING MORE CAREFULLY AMD ROBUST SENSITIVITIES
•Determine those
uncertainties to which
the forecast is more
sensitive – real risks
•Provide better ranges
for the “forecast” and
scenarios, given the
key uncertainties.
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DETERMINATION OF APPROPRIATE BUFFERS AND CONTINGENCIES
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PERFORMANCE IMPROVEMENT “FORECASTING”
In investments
In worse-better-before situations
For early warning-learning systems
Properly calibrated models, can provide forecast of the expected
change in performance resulting from the selected initiative.
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CONCLUSION
System dynamics models for forecasting allows managers to :
•get an early warning of industry structural changes
•identify key sensitivities and scenarios
•determine appropriate buffers and contingencies for forecast
inaccuracies.
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THANK YOU FOR
LISTENING…
ANY QUESTIONS ?