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Forecasting Report (Word)

Forecasting involves making predictions about the future based on past and present data, usually through trend analysis. Forecasts are commonly used to predict variables like profits, costs, and availability of resources. While perfect forecasts are impossible due to uncertainty, grouping items together improves accuracy by canceling out individual errors. Accuracy also decreases as the time horizon of the forecast increases. For a forecast to be effective, it needs to be timely, accurate, reliable, expressed in meaningful units, and simple to understand. Forecasts are often wrong due to unsuitable software, inexperienced forecasters, biases influencing the process, or behaviors that cannot be accurately predicted no matter the method used.

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49 views

Forecasting Report (Word)

Forecasting involves making predictions about the future based on past and present data, usually through trend analysis. Forecasts are commonly used to predict variables like profits, costs, and availability of resources. While perfect forecasts are impossible due to uncertainty, grouping items together improves accuracy by canceling out individual errors. Accuracy also decreases as the time horizon of the forecast increases. For a forecast to be effective, it needs to be timely, accurate, reliable, expressed in meaningful units, and simple to understand. Forecasts are often wrong due to unsuitable software, inexperienced forecasters, biases influencing the process, or behaviors that cannot be accurately predicted no matter the method used.

Uploaded by

glz mp
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Forecasting 

is the process of making predictions of the future based on past and


present data. This is 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.

Forecasts are also used to predict profits, revenues, costs, productivity changes, price,
and availability of energy and raw materials. It also helps managers to reduce some
uncertainties.

Features Common to All Forecasts

1. Forecasts are rarely perfect; actual results usually differ from predicted values.
- Forecasting the future involves uncertainty. Therefore, it is almost
impossible to make a perfect prediction.
2. Forecasts for groups of items tend to be more accurate than forecasts for
individual items because forecasting errors among items in groups usually have
a cancelling effect.
- When items are grouped together, their individual high and low values can
cancel each other out. The data for a group of items can be stable even
when individual items in the group are very unstable.
3. Forecast accuracy decreases as time period covered by the forecast – the time
horizon - increases.
- The shorter the time horizon of the forecast, the lower the degree of
uncertainty. Data do not change very much in the short run.

Elements of a Good Forecast

1. The forecast should be timely.


 A certain amount of time is going to be needed to respond to a new
forecast. In order to increase or reduce production to meet the forecast
you’re going to need enough time to reconfigure your equipment and
processes.
2. The forecast should be accurate and the degree of accuracy should be stated
 Any forecasting needs to be as accurate and researched as possible. This
will enable any user to plan for possible error.
3. The forecast should be reliable, it should work consistently.
 In a similar vein to being accurate, a forecast system needs to produce the
same results every time. Even an occasional error could cause big
problems for your overall forecast and projections, and could leave users
with the uneasy feeling that their system isn’t as reliable as it should be.
4. The forecast should be expressed in meaningful units
 The forecast needs to be in a unit of measurement that is the most
meaningful to whoever will be using it. If the forecast is primarily financial,
measuring it in the cost of the items as opposed to the quantity of items
produced will prove more useful, while production planners need to know
how many of each unit will be produced, and so on and so forth.
5. The forecast technique should be simple to understand and use.
 Forecasts that are overly complicated tend not to instil a lot of confidence
in users. Make sure your forecasts are thorough enough to cover
everything that needs to be forecasted, but simple enough that new users
can get acclimated quickly.

Why are forecasts generally wrong?

- Unsuitable software – software that doesn’t have the necessary


capabilities, has mathematical errors, or uses inappropriate methods. It is
also possible that the software is perfectly sound but due to untrained or
inexperienced forecasters, it is misused.
- When untrained, unskilled, or inexperienced forecasters exhibit
behaviours that affect forecast accuracy. This happens when a forecaster
constantly adjusts the forecast based on new information.

- Process contamination by the biases, personal agendas, and ill-


intentions of forecasting participants. Instead of presenting an unbiased
best guess at what is going to happen, the forecast comes to represent
what management wants to see happen.

- Desired level of accuracy is unachievable for the behaviour being forecast.


Consider calling heads or tails in the tossing of a fair coin. It doesn’t matter
that we may want to achieve 60, 70 or 90 percent accuracy. The reality is
that over a large number of tosses, we will only be right half of the time
and nothing can change that. The nature of the behaviour determines how
well we can forecast it – and this applies to demand for products and
services just as it does to tossing coins.

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