1 / 30

HFT 3431

HFT 3431. Chapter 9 Forecasting Methods. Forecasting. How Important Is Forecasting? Is Forecasting Only Financial? How Is It Done? Does Forecasting Help Be Successful? What Are Forecasting Limitations? Does Forecasting Differ From Planning?. Forecasting.

stacy-talley
Download Presentation

HFT 3431

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. HFT 3431 Chapter 9 Forecasting Methods

  2. Forecasting • How Important Is Forecasting? • Is Forecasting Only Financial? • How Is It Done? • Does Forecasting Help Be Successful? • What Are Forecasting Limitations? • Does Forecasting Differ From Planning?

  3. Forecasting • What Is the Difference Between Seasonal and Cyclical Patterns? • How Do Quantitative and Qualitative Forecasting Methods Differ?

  4. Forecasting • How Is a Moving Average Calculated? • When Are Causal Forecasting Approaches Useful?

  5. Implicit versus Explicit Forecasts • Implicit - (Intuitive) Unsystematic Imprecise Difficult to Evaluate

  6. Implicit versus Explicit Forecasts • Explicit - (Analytical) Systematic Reasonably Reliable and Accurate Rational Evaluation

  7. The Nature of Forecasting • Done by All Levels of Management • Looks at the Future • Involves Uncertainties • Based on Historical Data • Less Accurate Than Desired • Extensive Use of Naive Models

  8. The Nature of Forecasting • Large Properties Need to Use More Sophisticated Models • Trend - Straight Line Projection • Long run estimate-several years • Seasonal - Fluctuate Over Time • Cyclical - Movements Over a Trend • Movements around a trend line • Random Variations Create Uncertainty

  9. Data Pattern

  10. Formal Forecasting Methods • Qualitative • Emphasize human judgment • Quantitative • Causal & time period approaches

  11. Qualitative Methods • Market Research • Gather information from potential customers • Juries of Executive Opinion • Top executive jointly prepare forecasts • Sales Force Estimates • Bottom up approach from unit managers • Delphi Method • Formal process with a group of experts

  12. Quantitative Methods • Time Series • Naïve • Smoothing • Decomposition • Causal methods • Regression Analysis • Econometrics

  13. Time Series • Naïve • Simples rules • Smoothing • Uses moving average or recent pst values (exponential smoothing) • Decomposition • Time series broken down into cyclical, seasonality randomness

  14. Forecasting Methods • Naïve Method - Multiply current sales level (or sales price) by a percentage increase (or decrease); or add (or subtract) a fixed amount. • This method does not use any analytical or scientific method

  15. Forecasting Method • Naïve Example • Current year sales level is 1,000 units • Current year sales price is $15.00 • Next year levels increase 10% • Next year price decreases $0.50 • Current Year Total Sales Equals 1,000 * $15.00 = $15,000

  16. Forecasting Method • Naïve Example - Continued • Next year sales level equals 1,000 * 1.10 = 1,100 • Next year price equals $15.00 - $0.50 = $14.50 • Next year Total Sales equals 1,100 * $14.50 = $15,950

  17. Forecasting Methods • Moving Averages - Sum of Activity in Previous N Periods Divided by N, Where N Is the Number of Periods

  18. Moving Average • Page 408; Forecast week 13 using 3 week moving average Thus use data in weeks 10, 11, 12 and divide by 3 (1025 + 1000 + 1050) / 3 = 1025

  19. Forecasting Methods • Exponential Smoothing - Uses a Smoothing Constant and Recent Actual and Forecasted Activity to Estimate Future Activity

  20. Exponential Smoothing • Forecast for Period 3: • Using Data below • Period 1 Forecast 1,025 • Period 1 Actual 1,000 • Period 2 Forecast 1,020 • Period 2 Actual 1,050

  21. Exponential Smoothing • Forecast for Period 3: • Step 1 - Determine Smoothing Constant Period 2 Forecast - Period 1 Forecast Period 1 Actual - Period 1 Forecast (1,020 - 1025 ) / (1,000 – 1,025 ) = 0.20

  22. Exponential Smoothing • Step 2 • Forecast for Week 3 • Wk 3 F = Wk 2 F + SC(WK2 Act – Wk2 F) • Wk 3 F = 1,020 + 0.2(1,050 - 1,020) • Wk 3 F = 1,020 + 0.2(30) • Wk 3 F = 1,026

  23. Forecasting Methods • Causal - Regression Analysis Which Is Estimating an Activity (Dependent Variable) on the Basis of Other Activities (Independent Variables)… • How Closely Related Is Measured by Coefficient of Correlation and Coefficient of Determination

  24. Forecasting Methods • Coefficient of Correlation ( r )– is the measure of the relationship between the dependent and independent variables. Closer to 1 the stronger the relationship. • Coefficient of Determination ( r2 ) – reflects the extent to which the change in the independent variable explains the change in the dependent variable

  25. Regression Analysis • Formula Y = A + BX Y is the dependent variable A is a constant B is a multiplier X is the independent variable

  26. Regression Analysis • Page 412 Y = 370 + 1.254x If X = 3,000 rooms Y = 370 + 1.254(3000) Y = 6,013 meals

  27. Forecasting Limitations • Scarcity of Data • Assumes Continuation of Trends • Unforseeable Occurrences

  28. Qualitative Methods • Based on human judgment • Market Research • Jury of Executive Opinion • Sales force estimates • Delphi Method

  29. Consideration In Choosing a Forecasting Method • Effectiveness in Providing Information • Cost of Implementation • Frequency of Forecast Updates • Turnaround Time of Forecasting

  30. Consideration In Choosing a Forecasting Method • Size and Complexity of Operation • Forecasting Skills of Personnel • Purpose of Making Forecast

More Related