Forecasting (1)

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7 Forecasting

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Transcript of Forecasting (1)

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7Forecasting

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I see that you willget an A in this semester.

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Accounting Cost/profit estimates

Finance Cash flow and funding

Human Resources Hiring/recruiting/training

Marketing Pricing, promotion, strategy

MIS IT/IS systems, services

Operations Schedules, MRP, workloads

Product/service design

New products and services

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Uh, give me a minute.... We sold 250 wheels lastweek.... Now, next week we should sell....

The forecast for any period equals the previous period’s actual value.

It’s like driving a car by looking in the rear-view Mirror.

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Peculiarities of forecasting are :Forecasting is concerned with future events.

It shows the probability of happening of future events.

It analysis past and present data.It uses statistical tools and techniques.

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☺Analyzing and understanding the problem.

☺Developing sound foundation

☺Collecting and analyzing data.

☺Estimating future events.

☺Comparing results.

Follow up action.

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Economic Forecasting

Predicts what thegeneral business

Conditions will be in the future (e.g.Inflation rates, Gross National

product,Tax, level of

employment.)

TechnologyForecastingPredicts theProbability &

Possible futuredevelopment inTechnology (e.g.

Competitive advantage of

firms competitorsincorporation

into their product& processes

Demand Forecasting

Predicts the Quantity & timingof demand for aFirms product.

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Forecasting methods and routes

Techniques Routes

Qualitative Quantitative

Simple RegressionMultiple RegressionTime trendsMovingAverages.

MathematicalFormationStatisticalForecasting.NominalGroupTechnique.

Top-DownRoutes

Bottom-UpRoutes

WhereInternational and NationalEventseffect theFutureBehaviorof local variable

WhereLocalEventsEffectTheFutureBehaviorOf localvariable

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Importance of Forecasting

Provides relevant and reliable information about the past and present events and the likely future events. This is necessary for sound planning.

It gives confidence to the managers for making important decisions.

It is the basis for making planning premises. It keeps managers active and alert to face

challenges of future events and the changes in the environment.

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Importance in different areas

Fore casting is important for: Finance uses the long term forecasts to evaluate capital

investment needs. Human Resources uses forecasts to evaluate personnel

needs. IT designs and implements systems that generate

forecasts. Marketing develops sales forecasts used for mid-term to

long term planning. Operations develops and uses forecasts to make

decisions such as: scheduling, inventory management and long term capacity planning.

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The collection and analysis of data about the past, present and future involves a lot of time and money. Therefore, managers have to balance the cost of forecasting with its benefits. Many small firms don’t do forecasting because of high cost.

Forecasting can only estimate the future events. It can guarantee that these events will take place in the future. Long term forecasts will be less accurate as compared to short term forecasts.

Forecasting is based on certain assumptions. If these assumptions are wrong, the forecasting will be wrong. Forecasting is based on past events. However, history may not repeat itself at all times.

Forecasting requires proper judgment and skills on the part of managers. Forecasts may go wrong due to bad judgment and skills on the part of some of the managers. Therefore, forecasts are subject to human error.

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Choosing a Forecasting Choosing a Forecasting TechniqueTechnique

No single technique works in every situation Two most important factors

Cost Accuracy

Other factors include the availability of: Historical data Computers Time needed to gather and analyze the

data Forecast horizon

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Elements of a good forecastElements of a good forecast

1. Appropriate forecast horizon2. Degree of accuracy should be

taken into account3. Reliable4. Choose meaningful units (dollars

versus units)5. Use same forecast throughout

organization

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CONCLUSIONCONCLUSION

““Prediction is very Prediction is very difficult,difficult,especially if it's about especially if it's about the future.the future.””

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Matter By :- Akanksha shrivastav

Created By:- JAi NaGaWat