FORECASTING

Intended Learning Outcomes:

 Understand the need for forecasting

and the role it plays in decision

making.
 Relate the importance/significance of

forecasting in business
 Describe the types of forecasts
 Create a forecast using and

quantitative forecasting methods.

Basic Concepts
Forecast
Is a prediction, estimate, or

determination of what will occur in the

future (sales, interest rates, funds, GNP,
etc.) based on a certain set of factors
( past data, opinion, company data, or
perceived pattern related to time)
Time Horizons of Forecast
Short-term ( 1 day to 1 year )
Intermediate ( 1 to 2 years )
Long-term ( 2 to 5 years or more )
Classifications of Forecasting
 Qualitative
– based on judgments or
opinions and is subjective in nature;
does not rely on mathematical
computations

 Quantitative – based on quantitative

models and is objective in nature;
relies heavily on mathematical
computations
Types of Qualitative Forecast
 Delphi Method – based on the
principle that “responses from the first
questionnaires are used and
considered in preparing the second
set of questionnaires
 Jury of Executive Opinion – based on

the judgment of a single expert or a

consensus of the group of experts
 Sales Force Composite
 Consumer Market Survey
Types of Quantitative
Forecast
 Time Series – it is an attempt to
predict the future by means of
historical data and a set of ordered
observations
Methods:
a. Simple Moving Average
b. Weighted Moving Average
c. Exponential Smoothing
 Trend Line – uses a statistical method

known as the Least Squares Method

 Naïve Forecast – uses the actual
demand for the past period as the
forecasted demand for the next period
 Causal Forecasting – uses a cause-

effect relationship with one or more

variables
Time Series Methods
EXAMPLE:
The SHY motorcycle dealer in Tug. City
wants to accurately forecast the demand
for the SHY hybrid motorcycle during the
next month. Because the distributor is in
Japan, it is difficult to send motorcycle
back or recorded if the proper number of
motorcycles is not ordered a month
ahead. From sales records, the dealer
has accumulated the following data for
the past 8 months.
Month Demand
Apr 90
May 10
Jun 80
Jul 150
Aug 70
Sept 110
Oct 150
Nov 130
REQUIRED:
1. Compute the three and five-month
forecasts for December demand using
simple moving average
2. Determine the weighted moving
average forecast for December demand
with the following weights:
a. 20%, 30%, and 50%
b. 15%, 25%, and 60%
3. Establish the forecasts using
exponential smoothing of 0.10 and
0.30
A Toyota car dealer in Quezon City wants to be able
to forecast accurately the demand for their Toyota
Camry cars during the next months. From sales
records, the dealer has obtained the following data.
Month Car Sales ( in units )
June 12
July 10
August 11
September 12
October 10
November 14
December 16
January ___
 1. Compute a 3-month moving
average forecast for the month of
January
 2. Compute a 5-month moving

average forecast for the month of

January.
 3. Exponential smoothing with a

smoothing constant equal to. 20

assuming a July forecast of 19
 4. The naïve approach
 5. A weighted average using .60 for

Dec; .30 for Nov; and .10 for Oct