Forecasting is the art and science of predicting future events. It may involve taking historical data and projecting them into the future with some sort of mathematical model.
The three categories of Forecasting Time Horizons are:
1. Short-range forecast this has a time span of up to one year but is generally less than three months.
2. Medium-range forecast that generally spans from three months up to three years.
3. Long-range forecast three years or more is its time span.
Types of Forecasts
1. Economic forecasts model of this type are valuable in helping business prepare medium-to-long range forecasts.
2. Technological forecasts are concerned with the rates of technological progress.Such forecasts can be critical in such high technology industries such as nuclear power, aerospace, oil and computing.
3. Demand forecast is a projection of a company's sales for each time period in the planning horizon.
Quantitative Forecasting Techniques
1. Moving Averages are useful if we can assume that market demands will stay fairly steady over time.
2. Weighted Moving Averages when there is a trend or pattern, weights can be used to place more emphasis on recent values.
3. Exponential Smoothing is a forecasting method that is easy to use and efficiently handled by computers, although it is a type of moving average technique, it involves very little record keeping of past data.
4. Regression Analysis it is the most common quantitative causal forecasting model.
Practice Exercises
1. The sales at Ed's Catering are shown in the middle column of the following table. A three-month moving average appears on the right.
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Month Actual Sales Three-month moving average Three-month weighted moving average
January 15
February 18
March 21
April 19
May 24
June 23
July 21
August 26
September 29
October 31
November 30
December 29
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2. Period Actual Demand Forecast (0.10) Forecast (0.40)
1 42
2 40
3 43
4 40
5 41
6 39
7 46
8 44
9 45
10 38
11 40
12
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3. Year Local Payroll Sales
1992 2 1
1993 3 3
1994 2.5 4
1995 2 2
1996 2 1
1997 3.5 7
4. Hours of study Exam score
25 93
12 57
18 55
26 90
19 82
20 95
23 95
15 80
22 58
8 61
5. Sales Profit
7 0.15
2 0.10
6 0.13
4 0.15
14 0.25
15 0.27
16 0.24
12 0.20
14 0.27
20 0.44
15 0.34
7 0.17
6. Month Delivered Orders per month three-month moving three-month weighted
January 120
February 90
March 100
April 75
May 110
June 50
July 75
August 130
September 110
October 90
7. Attendance and Promotional Expenditure Data
Year Promotional Expenditures Home Attendance
1975 5.7 7
1976 5.5 10
1977 6.5 9
1978 9.0 12
1979 6.9 8
1980 8.1 14
1981 9.5 15
1982 10.2 17
1983 8.2 16
1984 10.6 18
8.
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