operman 3

Forecasting

The art and science of predicting future events using historical data, mathematical models, and manager judgment

Economic Forecasts

Forecasts that address the business cycle by predicting inflation rates, money supplies, housing starts, and other planning indicators

Technological Forecasts

Forecasts concerned with rates of technological progress which can result in new products requiring new plants and equipment

Demand Forecasts

Projections of demand for a company's products or services (also called sales forecasts) that drive production, capacity, scheduling, and overall planning

Human Resources Impact

The effect of demand forecasting on hiring, training, and laying off workers to maintain workforce quality

Capacity Impact

The effect of forecasting where inadequate capacity results in shortages, undependable delivery, loss of customers, and loss of market share

Supply Chain Management Impact

The effect of accurate forecasting on maintaining good supplier relations and securing price advantages for materials

Steps in Forecasting System

The 7-step process: determine use, select item, determine time horizon, select model, gather data, make forecast, and validate/implement results

Quantitative Methods

Forecasting techniques that exclude expert opinions and utilize statistical data and mathematical models

Time Series Analysis

Quantitative method accounting for internal structure in data points over time such as autocorrelation, trend, or seasonal variation

Discounting

The process of determining the present value of a payment or a stream of payments to be received in the future

Leading Indicators

Metrics that measure change and immediate progress to show the likelihood of achieving goals

Lagging Indicators

Metrics that measure direct results or outputs of an organization's activity

Econometrics

The application of statistical methods to economic data in order to give empirical content to economic relationships

Straight Line Method

Quantitative technique used for constant growth rate forecasting

Moving Average Method

Quantitative technique used for repeated forecasts based on historical averages

Simple Linear Regression

Quantitative technique comparing one independent variable with one dependent variable

Multiple Linear Regression

Quantitative technique comparing more than one independent variable with one dependent variable

Qualitative Methods

Forecasting approaches based on judgment, expert opinions, and non-quantitative data

Delphi Method

Qualitative technique using a panel of experts who anonymously answer iterative rounds of questionnaires until a consensus is reached

Educated Guess

Qualitative estimate made by one person based on experience and intuition, used for short-term forecasts when inaccuracy cost is low

Survey of Customers

Qualitative method gathering demand estimates directly from customers, suitable for businesses with few customers

Executive Committee Consensus

Qualitative forecast created by a committee of knowledgeable executives from different departments

Survey of Sales Force

Qualitative method gathering regional sales estimates directly from salespeople, which are then refined by managers

Market Research

Qualitative method testing hypotheses via surveys, questionnaires, or interviews to forecast demand for new products or new market segments

Historical Analogy

Qualitative method using sales knowledge of an existing or generic product during its life cycle to estimate sales for a similar new product