FORECASTING

• The art and science of predicting future

events.
 Types of Forecasts
1. Economic forecasts- this type are valuable in
helping business prepare medium-to-long
range forecasts.
2. Technological forecasts- concerned wit the
rates of technological progress.
3. Demand forecast- projection of a company’s
sales.
 General Classification
1. Qualitative Forecasts- an estimation
methodology that uses expert judgment,
rather than numerical analysis.
2. Quantitative Forecasts- an estimation
method that attempts to correlate two or
more variables and the time series method
that uses past trends to make forecasts.

SOURCE: businessdictionary.com
 Qualitative Forecasting
• Delphi Method
• Jury of Executive Opinion
• Sales Force Composite Method
• Consumer Survey Method

SOURCE: businessdictionary.com; businessjargon.com; investopedia.com

 Delphi Method
• The Delphi method is a forecasting method
based on the results of questionnaires sent to
a panel of experts.
 Jury of Executive Opinion

• A method of forecasting using a composite forecast

prepared by a number of individual experts
 Consumer Survey Method
• Technique that involves direct interview of the
potential consumers.

• Has 3 methods:
1.) Complete enumeration method;
2.) Sample Method;
3.) Opinion Poll Methods.
 Sales Force Composite Method

• a sale forecasting method wherein the sales agents

forecast the sales in their respective territories,
which is then consolidated at branch/region/area
level, after which the aggregate of all these factors is
consolidated to develop an overall company sales
forecast.
 Quantitative Forecasting Techniques
1. Moving Averages
2. Weighted Moving Averages
3. Exponential Smoothing
4. Forecasting a time series using trend
projection
5. Regression Analysis
 Moving Averages
• These are useful if we can assume that market
demands will stay fairly steady over time.

• Formula:
Moving Average = Summation Demand in
previous n periods/ n
 Example:
1. The sales at Nolram’s Garden are shown in
the middle column of the following table.
3-month moving
Month Actual Sales 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
 Weighted Moving Averages
When there is a trend or pattern, weights can
be used to place more emphasis on recent
values.

Formula:
Weighted moving average= Summation
(Weight for period n)(Demand in period n)/
Summation Weight
 Example:
Nolram’s Garden decides t forecast storage
sales by weighting the past three months.
3-month moving
Month Actual Sales 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
 Exponential Smoothing
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.

Formula: Last period’s forecast + smoothing

constant(last period’s actual demand – last
period’s forecasts)
Example:
In January, a car dealer predicted a February
demand for 1,450 Panasonic Television sets.
Actual February demand was 1,516 Panasonic
Television sets. Using a smoothing constant of
(.20), forecast the demand for March.
Forecasting a time series using trend
projection
This is a way to forecast the value of a time
series that exhibits a long term linear trend.

Least-square Method formula is used:

Example:

Car Sales Data

Sales in
Year Thousands
1 25.5
2 27.2
3 28.1
4 26.4
5 29.3
6 31.2
7 30.6
8 28.6
9 31.4
10 32
 Regression Analysis
It is the most common quantitative casual
forecasting model. Least square method is
also employed to perform a linear regression
analysis.
Example:
1. Christian’s construction company renovates
old homes in Balic-Balic, Quezon City. The
following table lists Christian’s revenues and
wages in Balic-balic, Quezon during 2000-
2005.
Christian's Local
Year Sales in Payroll in
millions millions
2000 2 1
2001 3 3
2002 2.5 4
2003 2 2
2004 2 1
2005 3.5 7