Forecasting Lecture Notes

Flashcards for Forecasting Lecture Review

What is forecasting?

The art and science of predicting future events or trends based on past and present data.

What does forecasting help us do?

Navigate uncertainty, make informed decisions, and plan for the future.

What is the definition of forecasting regarding time series?

The statistical analysis of the past and current movement in the given time series to obtain clues about the future pattern of those movements.

Are forecasts generally correct?

No, forecasts are almost always wrong.

Why do we still need to forecast if they are often wrong?

Educated guesses about the future are more valuable for planning than no forecasts and no planning.

Name an area where forecasting is used.

Supply of Labour, Technology Growth Trend, New Laws and Regulations, Political Change, Competition, Economic Condition, Social Change

What is a general assumption of forecasting techniques?

That the same underlying system that existed in the past will continue to exist in the future.

Are forecasts perfect?

No, actual results usually differ from predicted values because of randomness.

Are forecasts more accurate for groups or individuals?

Groups, because forecasting errors among items in a group usually have a canceling effect.

How does forecast accuracy change as the time horizon increases?

Forecast accuracy decreases as the time horizon increases.

Why are short-range forecasts more accurate?

They contend with fewer uncertainties than longer-range forecasts.

What is the first step of forecasting?

Determine the purpose of the forecast.

What is the second step of forecasting?

Establish a time horizon.

What should be kept in mind when establishing a time horizon?

Accuracy decreases as the time horizon increases.

What is the third step of forecasting?

Obtain, clean, and analyze appropriate data.

What does 'cleaning' data involve?

Getting rid of outliers and obviously incorrect data.

What is the fourth step of forecasting?

Select a forecasting technique.

What is the fifth step of forecasting?

Make the forecast.

What is the sixth step of forecasting?

Monitor the forecast.

Why should a forecast be monitored?

To determine whether it is performing in a satisfactory manner.

What is one importance of forecasting?

Forecasting provides relevant and reliable information about the past and present events and likely the future events.

How does forecasting help managers?

It gives confidence to the managers for making important decisions.

What is forecasting the basis for?

Making planning premises.

How does forecasting keep managers?

Active and alert to face the challenges of future events and the changes in environment.

What can accurate forecasting reduce?

The degree of uncertainty.

Can multiple forecasting techniques be combined?

Yes, more than one technique can be combined for making the forecasting effective.

What are the two main types of forecasting methods?

Qualitative and Quantitative methods.

What are qualitative methods based on?

Judgments, opinions, intuition, emotions, or personal experiences.

What is the nature of qualitative methods?

Subjective.

Do qualitative methods rely on mathematical computations?

No, they do not rely on any rigorous mathematical computations.

What are quantitative methods based on?

Mathematical (quantitative) models.

What is the nature of quantitative methods?

Objective.

Do quantitative methods rely on mathematical computations?

Yes, they rely heavily on mathematical computations.

Name a qualitative forecasting method.

Executive Opinion, Market Survey, Sales force opinion, Delphi Method

Name a quantitative forecasting method.

Time-Series Models, Associative Models

What is Executive Opinion?

An approach in which a group of managers meet and collectively develop a forecast.

What is a Market Survey?

An approach that uses interviews and surveys to judge preferences of customer and to assess demand.

Why are sales person's opinions important?

Sales persons are closer to the consumers and their opinions are taken into consideration for correct sales trend.

What is the Delphi method?

Opinions are taken from experts through questionnaire and then summarized and again given to experts for expected future evaluations.

What is the basis of Time-Series Models?

Forecasts are based on the assumptions that the business conditions affecting its steady growth or decline are reasonably expected to remain unchanged in the future.

What do Associative Models assume?

That the variable being forecasted is related to other variables in the environment.

What do Associative Models try to do?

Project based upon the associations between variables.

What is the Naive model?

Uses last period’s actual value as a forecast

What is the Simple Moving Average model?

Uses an average of a specified number of the most recent observations, with each observation receiving the same emphasis (weight)

What is the Weighted Moving Average model?

Uses an average of a specified number of the most recent observations, with each observation receiving a different emphasis (weight)

What is Exponential Smoothing?

A weighted average procedure with weights declining exponentially as data become older

What is a limitation of forecasting regarding costs?

The collection and analysis of data about the past, present and future involves a lot of time and money, so managers have to balance the cost of forecasting with its benefits.

Can forecasting guarantee future events?

No, it can only estimate the future events, and long-term forecasts will be less accurate than short-term ones.

What is a limitation of forecasting regarding assumptions?

Forecasting is based on certain assumptions, and if these assumptions are wrong, the forecasting will be wrong. Also, history may not repeat itself.

How can forecasts go wrong due to human error?

Forecasts require proper judgment and skills on the part of managers, and forecasts may go wrong due to bad judgment and skills on the part of some of the managers.