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FORECASTING
Forecast is an estimation of a future event achieved by systematically combining and casting forward in a pre-determined way, date about the past
Prediction is an estimation of future events achieved through subjective consideration, other than just past data. This subjective consideration need not occur in any predetermined way [Before start of a business, prediction or forecast of the Demand is made]
3 PLANNING HORIZONS
Long Term Planning Horizon > 2 Yrs Intermediate Range Planning Horizon 3 months to 2 years Short Term Planning Horizon < 3 months [How much material to keep]
Parameters
Lagging Parameters: Parameters which has already happened in past Leading Parameters: Parameters which are expected to take place in future eg: Research may lead to change in scenario, so plan according to the changes taking place
QUALITATIVE MODELS
1. Market Research Questioner Technique
Problem:
a) People are not serious while answering b) Questionnaire is going to all kind of respondents
Problem:
a) Ideas not agreed to due to ego b) Discussion loses direction or is not based upon correct presumptions or facts
QUALITATIVE MODELS
3. Delphi Technique
Takes best of questionnaire and brain storming techniques Questionnaire is sent to limited number of respondents, who are experts in that area 1st Round of Questionnaire: Opinion is taken along with reasons 2nd Round of Questionnaire: Group view is given and then option is given to change your opinion
QUANTITATIVE TECHNIQUES
1. Extrapolative or Time Series Analysis 2. Causal or Explanatory Model or Regression Analysis
Period (t) 1 2 3 4 5 6
Demand (Dt) 10 8 12 11 9 15
Forecast (Ft)
10 10.33 10.67
Exponential Smoothing
Ft+1 = Ft + (Dt - Ft) = Dt + (1 - ) Ft where smoothing coefficient; and 0<<1 corrects the observed error (Dt - Ft) in period t or tries to adjusts the average demand (base), so as to remove the randomness in the demand Ft+1 = Dt + (1 - ) [ Dt-1 + (1 - ) Ft-1 ] = Dt + (1 - ) Dt-1 + (1 - )2 Ft-1
Forecast Errors
Forecast Error = Actual Demand for period t Forecast for period t et = Dt Ft Forecast Errors provide a measure of accuracy and basis for comparing the performance of alternate models
Forecast 18 25 15 30 35
Error +2 +5 -5 +10 -5
(Error)2 4 25 25 100 25
Horizontal Pattern
Graph between Demand & Time Important from Operational Point of View
Demand
Time
Trend Pattern
Demand
Time
Seasonality Pattern
Seasonality can range from 1 day to 1 year
Season 1 Season 2
Demand
Time
1 Day Seasonality: Telephone calls, Newpaper 1 Month Seasonality: Grocery purchase in beginning of month
Cyclic Pattern
One cycle running into 5 / 20 / 50 yrs
Demand
Time
3. 4.
Demand
Tt-1 = 30 addl cust / week Dt = 270 cust (this week) = 0.2 = 0.3 Time
4.
1.
4.
1.
Forecast customer demand for each quarter of 2011, based on managers estimate of 2600 customers in 2011.
Qtr D 1 2 3 4
2009 f .056 .325 .461 .158 D 100 585 830 285 1800
2010 f .045 .33 .527 .098 f 100 705 1160 215 2200
Total 1000
Frequency for each quarter of 2011 would be average frequency of frequencies of previous 4 years in each quarter ie f1 = (0.045 + 0.058 + 0.056 + 0.045) / 4 = 0.051. And Demand Di = fi * Total Demand (2600)