Forecasting (Operation management Discussion )
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SEU_MGT530_Module03_PPT_Ch03.pptxForecasting
Chapter 3
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You should be able to:
LO 3.1 List features common to all forecasts
LO 3.2 Explain why forecasts are generally wrong
LO 3.3 List elements of a good forecast
LO 3.4 Outline the steps in the forecasting process
LO 3.5 Summarize forecast errors
Chapter 3: Learning Objectives
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Forecast
Forecast – a statement about the future value of a variable of interest
We make forecasts about such things as weather, demand, and resource availability
Forecasts are important to making informed decisions
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Two Important Aspects of Forecasts
Expected level of demand
The level of demand may be a function of some structural variation such as trend or seasonal variation
Accuracy
Related to the potential size of forecast error
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Plan the system
Generally involves long-range plans related to:
Types of products and services to offer
Facility and equipment levels
Facility location
Plan the use of the system
Generally involves short- and medium-range plans related to:
Inventory management
Workforce levels
Purchasing
Production
Budgeting
Scheduling
Forecast Uses
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Techniques assume some underlying causal system that existed in the past will persist into the future
Forecasts are not perfect
Forecasts for groups of items are more accurate than those for individual items
Forecast accuracy decreases as the forecasting horizon increases
Features Common to All Forecasts
LO 3.1
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Forecasts Are Not Perfect
Forecasts are not perfect:
Because random variation is always present, there will always be some residual error, even if all other factors have been accounted for.
LO 3.2
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The forecast
Should be timely
Should be accurate
Should be reliable
Should be expressed in meaningful units
Should be in writing
Technique should be simple to understand and use
Should be cost-effective
Elements of a Good Forecast
LO 3.3
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Determine the purpose of the forecast
Establish a time horizon
Obtain, clean, and analyze appropriate data
Select a forecasting technique
Make the forecast
Monitor the forecast errors
Steps in the Forecasting Process
LO 3.4
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Forecast Accuracy and Control
Allowances should be made for forecast errors
It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs
Forecast errors should be monitored
Error = Actual – Forecast
If errors fall beyond acceptable bounds, corrective action may be necessary
LO 3.5
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