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7/28/2019 Why Forecast
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Reason for Forecasting and
Its Techniques
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Overview
Why Forecast?
An Overview of forecasting techniques
Basic steps in a forecasting task
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Vocabulary
Lead time
There is a time lag between the time
an about to happen event and the actualoccurrence of the event is called the leadtime.
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Why Forecast?
1) Uncontrollable external eventsExample: those that originate with thenational economy, governments,
customers.2) Controllable internal events such asmarketing or manufacturing decisions
within the firm.
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Why Forecast?
Forecasting applies to the 1) while decisionmaking applies to 2) Planning links 1) &2).
Please see page 4 of the textbook:Forecasting: Methods and Applications,by Spyros Makridakis, Steven C.
Wheelwright, and Rob J. Hyndman. ISBN0-471-53233-9 John Wiley and Sons, Inc.
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Role of Forecasting
In the following areas
Scheduling: Forecasts the level of demand
for
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Acquiring resources: Lead time to acquireraw materials, etc.
Determining resource requirements: Longterm planning.
Its role continued.
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An Overview of Forecasting
Techniques Quantitative:Sufficient quantitative
information is available.
It depends on judgment andaccumulated knowledge. Used toformulate Strategy, long-range plans, etc.
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Quantitative data
Time series: Predicting the continuation ofhistorical patterns (trends) such as thegrowth of sales or gross national product(GNP)GNPt+1 = f(GNPt, GNPt-1, .., error)
Explanatory: Understanding how explanatoryvariables such as prices and advertising affectsales. GNP = f(monetary &fiscal policies,inflation, capital spending, import, export, ..,error)
Need to know how to predict and not the why
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Qualitative:Little or no quantitative informationis available, but sufficient qualitative knowledgeexists.
Qualitative:
Predicting the impact of gasoline price
if and when it hits $ 3.00 per gallon.
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Qualitative continued
Predicting the discovery of a new,very cheap form of energy thatproduces no pollution.
Predicting the speed oftelecommunications around the year2020.
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An Overview of Forecasting
TechniquesUnpredictable:little or no information is
available.
Predicting the effects of interplanetary
travel.
Predicting the discovery of a new, very
cheap form of energy that produces nopollution.
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When Can One Do Quantitative
Forecasting?1. Information about the past is available.
2. This information is available in the form
of numerical data3. Assumption of continuity: It can be
assumed that some aspects of the past
pattern will continue into the future.Continuity assumption is also need forqualitative forecasting
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Why Forecasting Works?
Some aspects of the history do repeatthemselves in a sense.