Hello everyone, I’m patricia montipon and i’m about to discuss the
topic steps in forecasting process.
Steps in Forecasting Process
There are six basic steps in the forecasting process:
1. Determine the purpose of the forecast.
What is the purpose of the forecast? and when will it be needed? In
this step, it will provide an indication of the level of detail required in
the forecast, for example, the purpose of the forecast is to forecast
the sales, the amount of resources, the personnel and the profit. And
when will it be needed, it is either next week, next month or even
next year.
Uhm dito sa unang step, inaalam or tinutukoy pa lang yung
kahalagahan ng forecast na gagawin.
2. Establish a time horizon.
The forecast must indicate a time interval, for example, if they are to
cover the previous profit of this year and just forecasting the sales
next year, or are they about to cover the period of the last five years.
Keep in mind that accuracy decreases as the time horizon increases.
Meaning mas bumababa yung antas ng accuracy habang lumilipas
ang panahon.
3. Select a forecasting technique or Methods
In this part, we have to know kung ano yung gagamitin na forecasting
technique.
Like for example, moving averages, weighted moving averages,
exponential smoothing and linear regression. That will be discussed
by the next reporter later.
4. Gather and analyze data.
In this part, you have to gather and analyze all the appropriate data
needed to get rid of outliers and obviously incorrect data before
analysis. And in order to forecasts what we need to forecast.
And this is the important process because we have to be sure that
the data, we gathered is clear and has a concrete data set.
For example, in order to forecast sales, you have to gathered all the
appropriate data of the sales last year.
5. Prepare the forecast.
After obtaining the data that has a significant role in creating the
forecast. You can now proceed in making the forecasts.
Pagkatapos mag gathered ng mga reliable information na kailangan,
maari nang simulan ang paggawa ng forecasts.
6. Monitor the forecast errors.
The forecast errors should be monitored to determine if the forecast
is performing in a satisfactory manner. Because If it is not, we have to
reexamine the method, assumptions, validity of data, and so on;
modify it as needed; and prepare a revised forecast.
That’s why it is very important to monitor the forecast if it is right or
wrong, or if it is very different from the actual reality, to make sure it
is accurate and relevant when compared to what it was forecasted.
APPROACHES TO FORECASTING
Judgmental forecasts rely on analysis of subjective inputs that is obtained
from various sources, such as opinions from consumer surveys, the sales
staff, managers and executives, and also panels of experts. these sources
provide insights and it is like forecasting the consumer behavior.
Time-series forecasts the most important and most used quantitative
forecast. Because It attempts to project past experience with the future.
These techniques are the set of observations, measured at a successive
period of time. The objective of the time series method is to discover a
pattern in the historical data and then extrapolate those patterns into the
future, the forecast is based solely on past values of the variable that we are
trying to forecast.
Associative models use equations that consist of one or more explanatory
variables that can be used to predict. In this technique we are looking for a
relationship between the two variables, between the one we are trying to
predict and the one we are using to predict. For example, demand for paint
might be related to variables such as the price per gallon and the amount
spent on advertising, as well as to specific characteristics of the paint (e.g.,
drying time, ease of cleanup)
QUALITATIVE FORECAST
One of the general approaches to forecasting is qualitative.
Qualitative forecast consists mainly of subjective inputs, which often defy
precise numerical description.
Qualitative techniques permit a subjective input such as; human factors,
personal opinions, hunches) in the forecasting process.
In such instances, forecasts are based on executive opinions, consumer
surveys, opinions of the sales staff, and opinions of experts.
Executive Opinions – Are compose of a small group of upper-level
managers (e.g., in marketing, operations, and finance) may meet and
collectively develop a forecast.
This approach is often used as a part of long-range planning and new
product development.
In this part, it is about the opinions of the executives and the heads of the
department and bosses of the organization where they are about to collect
and develop forecast.
Salesforce Opinions are the members of the sales staff or the customer
service staff and they are the good sources of information because of their
direct contact with the customers.
Salesforce opinion is an effective way to forecast because they are aware of
any plans that the customers may considered in the future. They know how
to distinguished between what the customers would like to do or actually
will do.
Consumer Surveys Because it is the consumers who ultimately determine
demand, it seems natural to solicit input from them. In some instances,
every customer or potential customer can be contacted. However, usually
there are too many customers or there is no way to identify all potential
customers. Therefore, organizations seeking consumer input usually resort
to consumer surveys, which enable them to sample consumer opinions.
Other Approaches or Outside Opinions - A manager may solicit important
judgements and opinions from a number of other managers and staff
people. Occasionally, outside experts are needed to help with a forecast. So,
this may concern advice on political or economic conditions in a foreign
country, or some other aspect of interest which an organization lacks
familiarity. So, they can have judgmental forecast based on qualitative
technique
Delphi method is an interactive process in which managers and staff
complete a series of questionnaires, among individuals who possess the
knowledge and ability to contribute meaningfully, each developed from the
previous one, to achieve a consensus forecast.
FORECASTS BASED ON TIME-SERIES DATA
A time series is a time-ordered sequence of observations taken at regular
intervals (e.g., hourly, daily, weekly, monthly, quarterly, annually). The data
may be measurements of demand, earnings, profits, shipments, accidents,
output, precipitation, productivity, or the consumer price index.
THE COMPONENTS OF A TIME-SERIES
1. Trend refers to a long-term upward or downward movement in the data.
Such as; Population shifts, changing incomes, and cultural changes often
account for such movements.
2. Seasonality refers to short-term, fairly regular variations and down
fluctuations generally related to factors such as the calendar or time of day.
Restaurants, supermarkets, and theaters experience weekly and even daily
“seasonal” variations. It is either due to weather or customs.
3. Cycles are wavelike variations of more than one year’s duration. These are
often related to a variety of economic, political, and even agricultural
conditions.
4. Irregular variations are due to unusual circumstances such as severe
weather conditions, strikes, or a major change in a product or service. They
do not reflect typical behavior, and their inclusion in the series can distort
the overall picture. Whenever possible, these should be identified and
removed from the data.
5. Random variations are residual variations that remain after all other
behaviors have been accounted for.
IN THIS FIGURE, AS YOU CAN SEE THE MOVEMENT CREATED FROM THE
TREND SERIES. IMAGINE THAT IT MEASURES THE DEMAND AS TIME GOES BY
AND YOU WILL SEE THAT THE DEMAND IS INCREASING WITH TIME. And in
this case the trend series is A positive trend because it goes up with time.
The trend could also be a negative one if it comes down with time. Then it
will be called as negative trend.
If yung movement na nakikita sa graph is upward then we can consider it is a
positive trend while if we see that the movement is downward, then it is a
negative trend.
In the graph, it also shows irregular variations, and irregular variations
happens when it has a certain reason due to unforeseen events. It is for only
a short duration and this is a non-repeating in the future.
SINCE CYCLES ARE A LONG-TERM DURATION THAN SEASONALITY, INSTEAD
OF USING OF MONTHS FOR CYCLES, WE WILL USE YEARS.
In this figure, you will see that the graph being created is a wavelike pattern
The third graph consist of seasonal variations, so there are some products
that could be popular or may have more demand in summer compared to
other season, where some other products might have an opposite demand.
For example, the demand varies in different specific time period and yung
product is.. example manga, so kapag summer season mas marami yung
demands or yung benta ng manga compared to normal days or rainy days.
Because it might be affected by some other factors. Tulad ng hindi pa
harvest season ng manga, or nagkaroon ng ibang pang instances. For
example, for the month of April sobrang indemand ng manga dahil harvest
season na, while pagdating ng September hindi na siya gaanong hinahanap
sa market because it is not the month season for mangoes. That’s why the
graph look like that dahil nag i-iba ang benta ng product depends on its
season
NAÏVE FORECAST
Uhm.. yung naïve forecast is kung ano yung nakuhang actual value sa past
period, dapat equal ito sa value ng present period.
So last week period they have sold 250 wheels, then next week period they
should also sell 250 wheels, because naïve forecast is an estimating
technique which the last period’s actual value are used as the new period’s
forecasts.
Naive forecasts are the simplest forecasting technique but widely used
approach to forecasting
The advantage of naive forecasts is virtually no cost, it is quick and easy to
prepare, easily understandable, can be a standard for accuracy
While its disadvantage is its inability to provide high accuracy forecast.
Example for this is, if the demand last week is 200 units of computers, then
the naïve forecast for the upcoming week is also 200 units.
Another example is, if the demand last February is 50 units of laptop then
one will assume that the demand for this upcoming month of march is also
50 units of laptop.
This is a naïve forecast because we are forecasting based on the exact data
of our previous actual sales or value.
Remember that the naïve forecast is an estimating technique in which the
last period’s actual value are used as the new period’s forecast.
