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Sales Forecasting

Sales Forecasting. MKT 311 Instructor: Dr. James E. Cox, Ph.D. The Forecasting Process. Set the objective of the forecast. Select Possible Forecasting Technique(s). Data Collection and Preparation. Parameterize the technique(s).

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Sales Forecasting

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  1. Sales Forecasting MKT 311 Instructor: Dr. James E. Cox, Ph.D

  2. The Forecasting Process Set the objective of the forecast Select Possible Forecasting Technique(s) Data Collection and Preparation Parameterize the technique(s) Select Technique(s) to Be used:Technique Evaluation and Selection Application of Technique(s) and Forecast Revision Evaluation of technique Performance

  3. Step 4: Parameterize the Techniques • Basic Procedure • Error Measurement • ME = mean error • MSE = mean squared error • MAD = mean absolute deviation • MPE = mean percentage error • MAPE = mean absolute percentage error • SD = standard deviation (or RMSE = root mean squared error) • SSE = signed square error

  4. Questions to Ask Regarding Which Error to Use • Is the manager looking for a long-term perspective; i.e. more interested in final result then by period-by-period accuracy? Is the period-by-period accuracy more important than ultimate accuracy? • Would the manager have trouble comprehending unless “regular” units are used to express error (accuracy ) ?

  5. Is the manager willing to accept more error if the (sales) base is larger? • Would extreme error be very costly so that manager would be willing to take lower overall accuracy if extreme error could be avoided for any one period? • Does the direction (sign) of error makes a difference?

  6. Characteristics of Error Measures • Mean Error (ME) - shows direction of error - does not penalize extreme deviations - errors cancel out (no idea of how much) • Mean Absolute Deviation (MAD) • - shows magnitude of overall error • - does not penalize extreme deviations • - errors do not cancel out • - no idea of direction of error

  7. Mean Squared Error (MSE) • - penalizes extreme errors • - errors do not offset one another • - not in original units • - does not show direction of error • Standard Deviation (SD) - penalizes extreme errors - errors do not offset one another - in original units

  8. Squared and Keep Sign (SSE) - penalize extreme errors - errors can offset one another - shows direction of error - not in original units

  9. Mean Percentage Error (MPE) • - takes percentage of actual sales • - does not penalizes extreme error • - errors can offset one another • - assumes more sales can absorb more error in units • Mean Absolute Percentage Error (MAPE) - takes percentage of actual sales - does not cancel offsetting errors - no penalty for extreme errors - assumes more sales can absorb more error in units

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