OPERATION MANAGEMENT

ASSIGNMENT

FORECASTING AND ITS TECHNIQUE

BY :-
MONIKA SAXENA
PRN -16021141064
SECTION B
FORECASTING is the process of making predictions of the future based on past
and present data and most commonly by analysis of trends. A commonplace
example might be estimation of some variable of interest at some specified future
date. Prediction is a similar, but more general term. Both might refer to formal
statistical methods employing time series, cross-sectional or longitudinal data, or
alternatively to less formal judgmental methods.
Types of Forecasts
Economic forecasts predict a variety of economic indicators, like money
supply, inflation rates, interest rates, etc.
Technological forecasts -Predict rates of technological progress and
innovation.
Demand forecasts o Predict the future demand for a companys products or
services.

TYPES OF FORECASTING METHODS

Qualitative methods: These types of forecasting methods are based on

judgments, Opinions, intuition, emotions, or personal experiences and are
subjective in nature. They do not rely on any rigorous mathematical
computations.
 Quantitative methods: These types of forecasting methods are based on
mathematical (quantitative) models, and are objective in nature. They rely
heavily on mathematical computations.

Time Series Models:

Assumes information needed to generate a forecast is contained in a
time series of data
Assumes the future will follow same patterns as the past
Causal Models or Associative Models
Explores cause-and-effect relationships
Uses leading indicators to predict the future
Housing starts and appliance sales

TIME SERIES MODELS

Nave -Uses last periods actual value as a forecast
Simple Mean (Average) -Uses an average of all past data as a forecast
Simple Moving Average- Uses an average of a specified number of the
most recent observations, with each observation receiving the same
emphasis (weight)
Weighted Moving Average -Uses an average of a specified number of the
most recent observations, with each observation receiving a different
emphasis (weight)
Exponential Smoothing -A weighted average procedure with weights
declining exponentially as data become older
Trend Projection Technique -uses the least squares method to fit a
Straight line to the data
Seasonal Indexes -A mechanism for adjusting the forecast to accommodate
Any seasonal patterns inherent in the data

Patterns that may be present in a time series

 Trend: Data exhibit a steady growth or decline over time.
Seasonality: Data exhibit upward and downward swings in a short to
intermediate time frame (most notably during a year).
Cycles: Data exhibit upward and downward swings in over a very long time
frame.
Random variations: (level ) Erratic and unpredictable variation in the data
over time with no discernable pattern .

Causal Models
 Often, leading indicators can help to predict changes in future demand e.g.
housing starts
Causal models establish a cause-and-effect relationship between independent
and dependent variables
A common tool of causal modeling is linear regression:
Additional related variables may require multiple regression modeling
Linear Regression

Identify dependent (y) and independent (x) variables

Solve for the slope of the line

Solve for the y intercept

Develop your equation for the trend line

Y=a + bX