Forecasting.pptVIP

Chapter 12 - Forecasting Forecasting is important in the business decision-making process in which a current choice or decision has future implications: Routine decisions very near in the future small gains or losses assume future is like the past Introduction to Forecasting Business is the main user of Forecasting Methods, but other areas such as State and Federal governments and non-profit organizations (university, hospital, services) use forecasting. Marketing and operations management is the most obvious function in business to use forecasting. A valid strategy depends on demand expectations. Introduction to Forecasting As business majors, you operate and make decisions within the framework of a complex, interrelated, social, economic, and competitive structure. The success of a firm depends on its ability to compete with firms producing similar products or services from the same market. Firms must secure information concerning potential market sales to plan effectively. Introduction to Forecasting Sales forecasts become the primary information input depicting the state of the environment. The better and more complete the data, the better the decision will be. Introduction to Forecasting Forecasting alleviates uncertainty: Long and short term forecasts Forecasts relating to industry trends Market research relating to consumer surveys Advertising Sales promotions Demand Anticipation Inventory levels Introduction to Forecasting Horizontal Pattern No trend, stationary Equally likely chance that the next value will be above the mean or below it Stable sales, # of defects in production process Introduction to Forecasting Seasonal Fluctuations occur in certain months/quarter during the year. Examples: weather, holidays Introduction to Forecasting Cyclical Similar to seasonal, but the length of cycle is longer than one year: Housing starts, GNP Difficult to predict because it does not repeat itself at constant intervals Introduction to Forecasting Trend Genera