Forecasting
CHAPTER 3
FORECASTING
KEY IDEAS
1.
Role of Forecasting.
Successful operations planning requires good forecasts as forecasts are a
basic input in the decision process providing information on future demand.
Forecasting is
imprecise, but the range of errors is predictable.
3.
Accuracy Measures.
Monitoring the accuracy of forecasts is important. Mean absolute deviation
(MAD), mean square error (MSE) and mean absolute percent error (MAPE) are all measures of
forecast accuracy, summarizing the degree to which actual values differed from predictions for
previous periods, on average.
The tracking signal (TS) is a measure of the
bias
of the differences
between the actual values and the predictions.
4.
Factors Influencing Accuracy.
The accuracy of a forecast system can depend upon the
accuracy of the historical time series data being used (the more accurate the past data, the more
accurate the forecast), the degree of similarity between past and future data patterns (the greater
the similarity, the greater forecast accuracy), the degree of aggregation of the data series being
forecast (more aggregation, more accuracy), the time lapse between the historical periods and the
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 Spring '10
 C.SCHNIEDER
 Forecasting, Regression Analysis, Futurology, Time series analysis, time lapse

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