Method or technique for estimating many future aspects of a business or other operation. It is used in the practice of customer demand planning in every day business forecasting for manufacturing companies.
There are three types of forecasting 1.Qualitative or Judgmental methods 2.Extrapolative or Time series methods 3.Causal or Explanatory methods
Rely on experts or managers opinion in making prediction for the future.Useful for medium to long range forecasting tasks.Provide a basis for some important decisions.
Three important Qualitative methods are :-Delphi Technique - Develop forecast through group consensus.Market Surveys – Involves the use of questionnaires, consumer panels & tests of new products & services.Scenario Writing - process of analyzing possible future events by considering alternative possible outcomes.
Use past history of demand.Comprised of four separate components: trend component, cyclical component, seasonal component, and irregular component.The objective of this method is to identify the pattern in historic data & extrapolate this for future.
TYPES OF EXTRAPOLATIVE METHODSMoving Average Method - average of demands occurring in several of the most recent periods.Weighted Moving Average - allows for varying weighting of old demands.Exponential Smoothing – exponentially decreases the weighting of old demands.
A statistical forecasting model based on historicaldemand data as well as on variables believed toinfluence demand.
There are two types of Causal forecasting methodsRegression analysis - a functional relationship is established between variables from the historical data and then used to forecast dependent variable values.Econometric method – an extension of regression analysis and include a system of simultaneous regression equations.