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Strategic Forecasts McGraw hill
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Terms in this set (37)
Strategic forecasts
Medium and long-term forecasts that are used for decisions related to strategy and aggregate demand.
Tactical forecasts
Short-term forecasts used for making day-to-day decisions related to meeting demand.
What are the four basic types that Forecasting can be classified into
- Qualitative
- Time series analysis
- Casual relationships
- Simulation
Autocorrelation
Denotes the persistence of occurence. The value expected at any point is highly correated with its own past values.
Time Series analysis
A forecast in which past demand data is used to predict future demand
Simple moving average; historical data requirement
6 to 12 months ; weekly data are often used
Weighted moving average and simple exponential smoothing + exponential smoothing with trend; historical data requirement
5 to 10 observations needed to start
Linear regression ; historical dtat requirement
10 to 12 observations
Trend and seasonal models ; historical data requirement
2 to 3 observations per season
Short term
Under 3 months
Medium term
three months to two years
Long term
Greater than two years
When deciding which forecasting model to use, a firm should consider what
1. Time horizon to forecast
2. Data availability
3. Accuracy required
4. Size of forecasting budget
5. Availability of qualified personnel
6. Firms degree of flexibility
7. The consequence of a bad forecast
A simple moving average gives ______ weight to each component of the forecast
Equal
A weighted moving average gives _______ weight to each element
Varying
Which forecasting technique is used most often?
Exponential smoothing
What is the formula for a simple moving average?
Ft + (At-1+At-2+At-3+...+At-n)/n
What are some reasons as to why exponential smoothing has been well accepted? (6 of them)
1. Exponential models are surprisingly accurate
2. Formulating an exponential model is relatively easy
3. The user can understand how the model works
4. Little computation is required to use the model
5. Computer storage requirements are small because of the limited use of historical data
6. Tests for accuracy as to how well the model is performing are easy to compute.
What is the main disadvantage of the moving average?
All individual elements must be carried as data because a new forecast period involves adding new data and dropping the earliest data
The exponential smoothing forecasting model uses what data? (there are 3 of them)
1. The most recent forecast
2. The actual demand that occurred for the forecast period
3. A smoothing constant alpha.
Ft
the exponentially smoothed forecast for period t
t
...
Ft-1
The exponentially smoothed forecast made for the prior period
At-1
The actual demand in the prior period
a
The desired response rate, or smoothing constant
...
...
Adaptive forecasting
Adjusting the value of alpha to more closely track actual demand
In exponential soothing, how many pieces of information are needed to forecast the future?
3
A time series can be defined as chronologically ordered data that may contain one or more components of demand. These components are
Trend, seasonal, cyclical, autocorrelation, and random
Through exponential smoothing the value for the constant is determined both by what?
Both by the nature of the product and by the manager;s sense of what constitutes a good response rate.
How do you choose weights
Experience and trial and error are the simplest ways to choose weights
True or false. All forecasts certainly contain some error
True, all forecasts contain at least some error
Mean absolute deviation (MAD)
The average of the absolute value of the actual forecast error
Is computed using the differences between the actual demand and the forecast demand without regard to sign. It equals the sum of the absolute deviations divided by the number of the data points or, stated in equation form.
Decomposition
The process of identifying and separating time series data into fundamental components such as trend and seasonality
Mad equation letter meanings
t = period number
At - Actual demand for the period t
FT - Forecast demand for the period t
N = total number of periods
II - A symbol used to indicate the absolute value disregarding positive and negative signs.
Which type of seasonal variation assumes that he season amount is a constant
Additive seasonal variation
One standard deviation is how many MADS
1.25
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