ops mgt 16_17_Forecasting-3

ops mgt 16_17_Forecasting-3 - Forecasting Prediction is...

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Forecasting Prediction is very difficult, especially if it's about the future. Nils Bohr
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http://www.exstatica.net/flash/psychic.swf Your Professor is a psychic!
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Objectives
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What is forecasting? Forecasting is a tool used for predicting future demand based on past demand information.
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Why is forecasting important? Demand for products and services is usually uncertain . Forecasting can be used for… Strategic planning (long range planning) Finance and accounting (budgets and cost controls) Marketing (future sales, new products) Production and operations
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What is forecasting all about? Demand for Mercedes E Class Time Jan Feb Mar Apr May Jun Jul Aug Actual demand (past sales) Predicted demand We try to predict the future by looking back at the past Predicted demand looking back six months
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From the March 10, 2006 WSJ: Ahead of the Oscars, an economics professor, at the request of Weekend Journal, processed data about this year's films nominated for best picture through his statistical model and predicted with 97.4% certainty that "Brokeback Mountain" would win. Oops. Last year, the professor tuned his model until it correctly predicted 18 of the previous 20 best-picture awards; then it predicted that "The Aviator" would win; "Million Dollar Baby" won instead. Sometimes models tuned to prior results don't have great predictive powers. What’s Forecasting All About?
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An interesting quiz:
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Some general characteristics of forecasts
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Key issues in forecasting 1. A forecast is only as good as the information included in the forecast (past data) 2. History is not a perfect predictor of the future (i.e.: there is no such thing as a perfect forecast) REMEMBER: Forecasting is based on the assumption that the past predicts the future! When forecasting, think carefully whether or not the past is strongly related to what you expect to see in the future…
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Example: Mercedes E-class vs. M-class Sales Month E-class Sales M-class Sales Jan 23,345 - Feb 22,034 - Mar 21,453 - Apr 24,897 - May 23,561 - Jun 22,684 - Jul ? ? Question: Can we predict the new model M-class sales based on the data in the the table? Answer: Maybe. .. We need to consider how much the two markets have in common
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What should we consider when looking at past demand data? Trends Seasonality Cyclical elements Autocorrelation Random variation
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Some Important Questions
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Types of forecasting methods Rely on data and analytical techniques. Rely on subjective opinions from one or more experts. Qualitative methods Quantitative methods
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Qualitative forecasting methods Grass Roots : deriving future demand by asking the person closest to the customer. Market Research
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This note was uploaded on 01/25/2011 for the course MGT 3501 taught by Professor Chang during the Spring '10 term at Georgia Institute of Technology.

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ops mgt 16_17_Forecasting-3 - Forecasting Prediction is...

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