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Overview
Why Forecast? An Overview of forecasting techniques Basic steps in a forecasting task
Vocabulary
Lead time There is a time lag between the time an about to happen event and the actual occurrence of the event is called the lead time.
Why Forecast?
1)
2)
Uncontrollable external events Example: those that originate with the national economy, governments, customers. Controllable internal events such as marketing or manufacturing decisions within the firm.
Why Forecast?
Forecasting applies to the 1) while decision making applies to 2) Planning links 1) & 2).
Please see page 4 of the textbook: Forecasting: Methods and Applications, by Spyros Makridakis, Steven C. Wheelwright, and Rob J. Hyndman. ISBN 0-471-53233-9 John Wiley and Sons, Inc.
Role of Forecasting
In the following areas Scheduling: Forecasts the level of demand for
Quantitative: Sufficient quantitative information is available. It depends on judgment and accumulated knowledge. Used to formulate Strategy, long-range plans, etc.
Quantitative data
Time series: Predicting the continuation of historical patterns (trends) such as the growth of sales or gross national product (GNP)
GNPt+1 = f(GNPt, GNPt-1, .., error)
Explanatory: Understanding how explanatory variables such as prices and advertising affect sales. GNP = f(monetary &fiscal policies, inflation, capital spending, import, export, .., error)
Need to know how to predict and not the why
Qualitative:
Qualitative: Little or no quantitative information is available, but sufficient qualitative knowledge exists. Predicting the impact of gasoline price if and when it hits $ 3.00 per gallon.
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Qualitative continued
Predicting the discovery of a new, very cheap form of energy that produces no pollution. Predicting the speed of telecommunications around the year 2020.
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