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MSCI_100_-_8-2_-_Forecasting

MSCI_100_-_8-2_-_Forecasting - Forecasting predict the...

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Forecasting predict the future for planning purposes 1 8-2: Forecasting
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Planning Many different words with almost the same meanings Strategy, plan, goal, objective, vision, mission… Basic idea: Some current state Some desired future state Steps (actions) are required to get to the future state Planning tries to connect current state to future state by defining the steps (actions) to get there e.g., choosing a strategy to achieve a goal Compete by 1) lowest price; 2) best quality; 3) flexible service, etc. e.g., “SWOT” analysis Strengths, Weaknesses, Opportunities, Threats Compare capabilities (strengths, weaknesses) against characteristics of environment in which organization operates (opportunities & threats) Capitalize on strengths to take advantage of opportunities Fix weaknesses to cope with threats 8-2: Forecasting 2
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Different views of relation between plan & action Planning precedes doing (plan action) Rational (and common sense) view of planning Goal defines desired future state Planning process translates goal into set of sub-goals and actions that (hopefully) lead to goal attainment Planning follows doing (action plan) People take specific actions (they do things) that make sense in the work situation (e.g., hire people, design certain products, etc.) Now & then managers/planners sit back and summarize actions in simpler, general terms that puts everything in context The plan formalizes activities that were already happening Recognizes that it’s impossible to plan everything in advance Iterative process (plan  action) Adjust actions to fit new plan (e.g., drop products that don’t fit strategy; develop new product to respond to competitor) Adjust plans based on discovery of good things to do & good ways to do things 8-2: Forecasting 3
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Forecasting Attempt to predict the future for planning purposes Usually within some fairly narrow, well-defined domain e.g., predict future demand, sales volumes, capacity & resource requirements, etc. Why is forecasting important? Forecasts are used to guide operational decisions e.g., how many people to hire, how much raw material 8-2: Forecasting 4
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5 Forecasting is hard: Some famous forecasts This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us . Western Union internal memo, 1876 In 1879, Western Union left the telephone business, having lost a patent lawsuit with Bell I think there is a world market for maybe five computers. Thomas Watson, chairman of IBM, 1943 8-2: Forecasting
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6 Practice Forecasting Period Guess Actual 1 111 2 108 3 100 4 105 5 115 6 117 7 114 8 113 9 106 10 109 11 121 12 125 13 - 14 - 15 - 16 - 17 - 18 - 19 - 20 - 21 - 22 - 23 - 24 - Here are (hypothetical) sales of digital cameras over 12 months at one of the local stores.
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