FIN4060 Week 2 Project

Forecasting

Life is full of uncertainties. You don't know what the weather will be tomorrow or what your

organization's sales �gures will be. However, you can try to predict the future. You can use the weather

forecast to estimate the weather and historical sales data to predict future sales.

In a business environment, a forecast is often an estimate of future demand. A forecast can be quantitative or qualitative. In addition, it can be based on factors that are either internal or external to

the organization.

Forecasts help reduce uncertainty as well as anticipate and manage change. There are three types of

forecasts: economic, technological, and demand. In this course, you will focus on demand forecasts. An

operations manager uses forecasts to anticipate inventory and capacity demand, manage lead times,

estimate costs for budgeting, and improve productivity.

Let's start with qualitative forecasts. There are no numbers involved in generating a qualitative

analysis. There are multiple methods, such as expert opinions or a consensus, which an organization

can use to collect data without performing a numerical analysis. Focus groups and market research are

used to collect data on a new product in case historical data is not available.

Another way to forecast a new product is to conduct a historical analogy. This process works especially

well when the new product is similar to a previous product of the organization. The use of historical

analogy assumes that the results experienced in offering the new product will be similar to the results experienced when the previous product was launched. 

In some situations, a qualitative forecast is appropriate. However, in other cases, a qualitative forecast

can be developed in conjunction with a quantitative forecast.  Such quantitative forecasts will be

discussed next.