1. List the elements of a good forecast.
-The forecast should be timely.
-The forecast should be accurate.
-The forecast should be reliable.
-The forecast should be expressed in meaningful units.
-The forecast should be in writing.
-The forecast technique should be simple to understand anduse.
-The forecast should be cost-effective: The benefits shouldoutweigh the costs.
2. Outline the steps in the forecasting process.
-1. Determine the purpose of the forecast.
2. Establish a time horizon.
3. Select a forecasting technique.
4. Gather and analyze relevantdata.
5. Make a forecast.
6. Monitor the forecast.
3. Describe at least three qualitative forecastingtechniques and the advantages and disadvantages of each.
-Executive opinions:A small group of upper-level managers may meet and collectively develop aforecast. It has the advantage ofbringing together the considerable knowledge and talents of various managers. However, there is a risk that the view of oneperson will prevail, and the possibility that diffusing responsibility for theforecast over the entire group may result in less pressure to produce a goodforecast.
Salesforce opinions: The sales staff or thecustomer service staff is often a good source of information because of theirdirect contact with consumers. They areoften aware of any plans the customers may be considering for the future. One disadvantage is that they may be unableto distinguish between what the customers would like to do and what theyactually will do. Another is that thesepeople are sometimes overly influenced by recent experiences. In addition, if forecasts are used toestablish sales quotas, there will be a conflict of interest because it is tothe salesperson’s advantage to provide low sales estimates.
Consumer Surveys: Sinceit is the consumers who ultimately determine demand, it seems natural tosolicit input from them. The obviousadvantage of consumer surveys is that they can tap information that might notbe available elsewhere. Disadvantages: A considerable amount of knowledge andskill is required to construct a survey, administer it, and interpret theresults for valid information. Surveyscan be expensive and time consuming.
4. Compare and contrast qualitative and quantitative approachesto forecasting.
-Qualitative methods consist mainly of subjective inputs,which often defy precise numerical description.Quantitative methods involve either the projection of historical data orthe development of associative models that attempt to utilize causal variablesto make a forecast. Qualitativetechniques permit inclusion of soft (human opinions & hunches) informationin the forecasting process. Those factorsare often omitted or downplayed when quantitative techniques are used becausethey are difficult to quantify.Quantitative techniques consist mainly of analyzing objective, or hard,data. They usually avoid personal biasesthat sometimes contaminate qualitative methods.
5. Briefly describe averaging techniques, trend and seasonaltechniques, and regression analysis, and solve typical problems.
Averaging techniques smooth fluctuations in a time seriesbecause the individual highs and lows in the data offset each other when theyare combined into an average. A forecastbased on an average thus tends to exhibit less variability than the originaldata. This can be advantageous becausemany of these movements merely reflect random variability rather than a truechange in the series.
6. Describe two measures of forecast accuracy.
- Three commonly usedmeasures for summarizing historical errors are the mean absolute deviation(MAD), the mean squared error (MSE), and the mean absolute percent error(MAPE). mean absolute deviation (MAD) is the average absolute forecast error. mean squared error(MSE) is the average of squared forecast errors. mean absolute percenterror (MAPE) is the average absolutepercent error.
7. Describe two ways of evaluating and controllingforecasts.
-A control chartis a visual tool for monitoring forecast errors. In order for the forecast errors to be judged“in control”, two things must happen.One is that all errors are within the control limits. The other is that no patterns, trends, andcycles are present. A tracking signal isthe ratio of cumulative forecast error to the corresponding value of MAD usedto monitor a forecast. It relates thecumulative forecast error to the average absolute error. The intent is to detect any bias in errorsover time.
8. Identify the major factors to consider when choosing aforecasting technique.
- The two most important factors are cost and accuracy. Other factors to consider in selecting aforecasting technique include the availability of historical data: theavailability of computer software: the ability of decision makers to utilizecertain techniques: the time needed to gather and analyze data and to preparethe forecast; and any prior experience with a technique.
