Академический Документы
Профессиональный Документы
Культура Документы
Management
Topic 2 – Forecasting
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA 1
Pearson-Prentice Hall
Learning outcomes
5/20/2019
Faculty of Mechanical
NY- MEMEngineering,
575: Courtesy of University Technology
Mc Graw Hill and MARA
Pearson-Prentice
2
Hall
What is Forecasting?
1. Process of predicting a
future event Hmm…. you are
going to get an A for
2. Underlying basis of this subject. But!!!
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
3
Pearson-Prentice Hall
Forecasting Time Horizons
1. Short-range forecast
Up to 1 year, generally less than 3 months
Purchasing, job scheduling, workforce levels, job
assignments, production levels
2. Medium-range forecast
3 months to 3 years
Sales and production planning, budgeting
3. Long-range forecast
3+ years
New product planning, facility location, research and
development
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
4
Pearson-Prentice Hall
Seven Steps in Forecasting
1. Determine the use of the forecast
2. Select the items to be forecasted
3. Determine the time horizon of the forecast
4. Select the forecasting model(s)
5. Gather the data
6. Make the forecast
7. Validate and implement results
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
5
Pearson-Prentice Hall
Types of Forecasts
1. Economic forecasts
Address business cycle – inflation rate, money supply,
housing starts, etc.
2. Technological forecasts
Predict rate of technological progress
Impacts development of new products
3. Demand forecasts
Predict sales of existing products and services
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
6
Pearson-Prentice Hall
Strategic Importance of Forecasting
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
7
Pearson-Prentice Hall
The Realities!
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
8
Pearson-Prentice Hall
Forecasting Methods
Generally there are two types of forecasting
methods; Qualitative and Quantitative Methods
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
9
Pearson-Prentice Hall
Forecasting Approaches
Qualitative Methods
Used when situation is vague and little
data exist
New products
New technology
Involves intuition, experience
e.g., forecasting sales on Internet
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
10
Pearson-Prentice Hall
Forecasting Approaches
Quantitative Methods
Used when situation is ‘stable’ and historical
data exist
Existing products
Current technology
Involves mathematical techniques
e.g., forecasting sales of color televisions
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
11
Pearson-Prentice Hall
Overview of Quantitative Approaches
1. Naive approach
2. Moving averages
Time-Series
3. Weighted Moving Averages Models
4. Exponential smoothing
5. Trend projection
Associative
6. Linear regression Model
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
12
Pearson-Prentice Hall
Time Series Forecasting
Set of evenly spaced numerical data
Obtained by observing response variable at
regular time periods
Forecast based only on past values, no other
variables important
Assumes that factors influencing past and
present will continue influence in future
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
13
Pearson-Prentice Hall
Time Series Components
Trend Cyclical
Seasonal Random
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
14
Pearson-Prentice Hall
Components of Demand
Trend
component
Seasonal peaks
Demand for product or service
Actual
demand
Average demand
over four years
Random
variation
| | | |
1 2 3 4
Year Figure 4.1
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
15
Pearson-Prentice Hall
Trend Component
1. Persistent, overall upward or downward
pattern
2. Changes due to population, technology,
age, culture, etc.
3. Typically several years duration
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
16
Pearson-Prentice Hall
Seasonal Component
1. Regular pattern of up and down
fluctuations
2. Due to weather, customs, etc.
3. Occurs within a single year
Number of
Period Length Seasons
Week Day 7
Month Week 4-4.5
Month Day 28-31
Year Quarter 4
Year Month 12
Year Engineering,
Faculty of Mechanical
NY- MEM 575:
Week
Courtesy of Mc University
52
Graw Hill and Technology MARA
5/20/2019 17
Pearson-Prentice Hall
Cyclical Component
1. Repeating up and down movements
2. Affected by business cycle, political, and
economic factors
3. Multiple years duration
4. Often causal or
associative
relationships
0 5 10 15 20
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
18
Pearson-Prentice Hall
Random Component
1. Erratic, unsystematic, ‘residual’ fluctuations
2. Due to random variation or unforeseen
events
3. Short duration and
non-repeating
M T W T F
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
19
Pearson-Prentice Hall
Naive Approach
Assumes demand in next
period is the same as
demand in most recent period
e.g., If January sales were 68, then February
sales will be 68
Sometimes cost effective and efficient
Can be good starting point
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
20
Pearson-Prentice Hall
Techniques for Averaging
1. Moving average
2. Weighted moving average
3. Exponential smoothing
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
21
Pearson-Prentice Hall
Moving Average Method
1. MA is a series of arithmetic means
2. Used if little or no trend
3. Used often for smoothing
Provides overall impression of data over time
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
22
Pearson-Prentice Hall
Moving Average Example
Actual 3-Month
Month Sales Moving Average
January 10
February 12
March 13
April 16 (10 + 12 + 13)/3 = 11 2/3
May 19 (12 + 13 + 16)/3 = 13 2/3
June 23 (13 + 16 + 19)/3 = 16
July 26 (16 + 19 + 23)/3 = 19 1/3
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
23
Pearson-Prentice Hall
Graph of Moving Average
Moving
30 –
Average
28 –
Forecast
26 – Actual
24 – Sales
22 –
Sales
20 –
18 –
16 –
14 –
12 –
10 –
| | | | | | | | | | | |
J F M A M J J A S O N D
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
24
Pearson-Prentice Hall
Weighted Moving Average
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
25
Pearson-Prentice Hall
Weights Applied Period
Weighted Moving Average
3 Last month
2 Two months ago
1 Three months ago
6 Sum of weights
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
26
Pearson-Prentice Hall
Moving Average And
Weighted Moving Average
Weighted
30 – moving
average
25 –
Sales demand
20 – Actual
sales
15 –
Moving
10 – average
5 –
| | | | | | | | | | | |
J F M A M J J A S O N D
Figure 4.2
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
27
Pearson-Prentice Hall
Potential Problems With
Moving Average
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
28
Pearson-Prentice Hall
Exponential Smoothing
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
29
Pearson-Prentice Hall
Exponential Smoothing
Remember This!!!!!!!!
New forecast = Last period’s forecast
+ (Last period’s actual demand
– Last period’s forecast)
Ft = Ft – 1 + (At – 1 - Ft – 1)
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
31
Pearson-Prentice Hall
Forecast Accuracy
(Common Measures of Error) – MAD #1
Error: difference between actual value and forecast value
1. Mean Absolute Deviation (MAD)
Average absolute error
{this value is computed by taking the sum of the absolute
values of the individual forecast errors and dividing by the
number of periods of data (n)}
∑ |Actual - Forecast|
MAD =
n
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA 32
Pearson-Prentice Hall
Forecast Accuracy
(Common Measures of Error)-MSE #2
∑ (Actual - Forecast )2
MSE =
n
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA 33
Pearson-Prentice Hall
Forecast Accuracy
(Common Measures of Error)-MAPE #3
n
MAPE = ∑100|Actuali - Forecasti|/Actuali
i=1 n
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA 34
Pearson-Prentice Hall
Common Measures of Error or Forecast
Accuracy
1) Mean Absolute Deviation (MAD)
∑ |Actual - Forecast|
MAD =
n
2) Mean Squared Error (MSE)
∑ (Actual - Forecast )2
MSE =
n
3) Mean Absolute Percent Error (MAPE)
n
MAPE = ∑100|Actuali - Forecasti|/Actuali
i=1 n
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
35
Pearson-Prentice Hall
Exponential Smoothing Example
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
36
Pearson-Prentice Hall
Exponential Smoothing Example
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
37
Pearson-Prentice Hall
Exponential Smoothing Example
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
38
Pearson-Prentice Hall
Exponential Smoothing Example 2
Demand for the last four months was:
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
39
Pearson-Prentice Hall
Exponential Smoothing Example 2
A) 1.
2.
(8+10+8)/3 = 8.67 (July Forecast)
Use naïve to begin Ft = Ft – 1 + (At – 1 - Ft – 1)
Month Demand Forecast
March 6 -
April 8 6
May 10 6 + 0.2(8 – 6) = 6.4
June 8 6.4 + 0.2(10 – 6.4) = 7.12
7.12 + 0.2(8 – 7.12) = 7.296
MAD = (2+2+2) /3 = 2
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
40
Pearson-Prentice Hall
Other Examples
Moving Average
Weekly sales of ten-grain bread at the local organic food market are in the table
below. Based on this data, forecast week 9 using a five-week moving average.
Week 1 2 3 4 5 6 7 8
(382+410+432+405+421)/5 = 410.0
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
41
Pearson-Prentice Hall
Other Examples
Exponential Smoothing & MAD
Jim's department at a local department store has tracked the sales of a product over the last
ten weeks. Forecast demand using exponential smoothing with an alpha (α) of 0.4, and an
initial forecast of 28.0. Calculate MAD, MSE and MAPE.
Period Demand
1 24
2 23
3 26
4 36
5 26
6 30
7 32
8 26
9 25
10 28
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
42
Pearson-Prentice Hall
Other Examples –F = F t t–1 + (At – 1 - Ft – 1)
Exponential Smoothing
Demand
Forecast І At – FtІ ( At – Ft)2 100*І At – FtІ / At
Period (Actual) Error
Ft І errorІ (error) 2 100 (І error І/actual)
At
1 24 28.00 -4 4 16 16.6 %
2 23 26.40 -3.40 3.40 11.56 14.78 %
3 26 25.04 0.96 0.96 0.92 3.69 %
4 36 25.42 10.58 10.58 111.94 29.39 %
5 26 29.65 -3.65 3.65 13.32 14.04%
6 30 28.19 1.81 1.81 3.28 6.03%
7 32 28.92 3.08 3.08 9.49 9.63 %
8 26 30.15 -4.15 4.15 17.22 15.96 %
9 25 28.49 -3.49 3.49 12.18 13.96%
10 28 27.09 0.91 0.91 0.83 3.25%
Total -1.36 36.03 196.74 127.33 %
Average -0.14 3.6 19.6 12.73 %
Bias MAD MSE MAPE
5/20/2019
Faculty of Mechanical Engineering, University Technology MARA 43
Let’s Recap
1. Discuss the overview of forecasting techniques
2. Compare and contrast qualitative and quantitative approaches to
forecasting
3. Apply the naive, moving averages, weighted moving averages and
exponential smoothing methods.
4. Compute and analyze three measures of forecast accuracy; MAD,
MSE and MAPE
5/20/2019
Faculty ofNY-
Mechanical Engineering,
MEM 575: Courtesy of Mc GrawUniversity Technology MARA
Hill and Pearson-Prentice
44
Hall
5/20/2019
Faculty of Mechanical Engineering,
NY- MEM 575: Courtesy of Mc University
Graw Hill and Technology MARA
45
Pearson-Prentice Hall
Thank you
46
Faculty of Mechanical Engineering, University Technology MARA
December 24, 2013 Footer text here
Other Examples –F = F t t–1 + (At – 1 - Ft – 1)
Exponential Smoothing
Demand
Forecast І At – FtІ ( At – Ft)2 100*І At – FtІ / At
Period (Actual) Error
Ft І errorІ (error) 2 100 (І error І/actual)
At
1 254 -
2 259 254 5
3 253 254+0.2(5)=255 -2
255+0.2(-2)=
4 268
254.2
5 264
6 265
7 257
5/20/2019
Faculty of Mechanical Engineering, University Technology MARA 47