Topics on Forecasting

Topics on Forecasting

Forecasting Demand

It entails predicting what will happen to the existing products of the organization. The knowledge on consumer demand for goods and services will help the supplier to keep the right amount of stock. In situations when suppliers overestimate the demand, they will be left with surpluses of stock, and this will affect their financial powers. Understanding the consumer demand is critical since it allows the organization to have a competitive edge in the market (Madura & Madura, 2008). Similarly, the ability to accurately predict the demand is necessary for efficient retailers, suppliers and manufacturers. Therefore, organizations need to use appropriate forecasting models to meet the needs of the consumers. The organization will carry out demand forecast through the following steps. First, the organization will determine the use of the forecast. Second, it will select the product or service to forecast and determine the time to forecast. Third, the organization will select an appropriate forecasting model to use, gather the data and make the forecast. Lastly, the organization will validate and implement the results from the forecast. The two approaches to determine the demand forecast include qualitative and quantitative approach.

Forecasting Accuracy

It refers to the measure of the closeness of the actual demand to the forecasted quantity. Similarly, it refers to the differences in percentage between the forecast and the according actuals (Armstrong, 2001). Since organizations use the final forecast in their decision-making process, they should ensure that it is fairly accurate. Forecast accuracy is used to measure the forecast model bias and the absolute size of the forecast error. Moreover, from the forecasting accuracy, we can compare alternative forecasting models. The organization can identify the forecast model that might need some adjustments. The benefits the organization will get from measuring forecast accuracy include the following. First, it will help the company to detect issues with their models (Armstrong, 2001). Second, the accuracy of the forecast can help the organization to detect cultural problems such as sandbagging. For instance, sales managers are afraid to give information so that they can avoid sales target. Third, when an organization measures and communicates forecast accuracy, it helps it to pay attention and focus on the forecast process.

Quantitative/Qualitative/Mixed methods

Quantitative method is a forecasting technique that applies when we have a stable situation, and the historical data exist. For instance, the organization can use the quantitative approach with existing products and services or current technology. Moreover, the approach involves the use of mathematical techniques to forecast for the future (Madura & Madura, 2008). In this method, to generate the predicted demand, a statistical concept is applied to the existing data. Some of the forecasting models include time series models and causal models. The qualitative approach uses expert judgment rather than relying on numerical analysis. Besides, the approach depends on the knowledge of the skilled employees and consultants in an organization to provide information on the future outcome (Madura & Madura, 2008). It applies when we have a vague situation, and there is little data. For instance, the organization can use new products and technology to forecast. The qualitative techniques in this approach include Delphi method, consumer market survey, the jury of execution opinion and sales force composite. Lastly, mixed method forecasting refers to the use of several different forecasting methods to predict the future performance of the company in a single forecasting process. Multinational corporations have found that no single forecasting technique is consistently superior to the others hence they prefer to use a combination of forecasting methods (Madura & Madura, 2008).



Armstrong, J. S. (2001). Principles of forecasting: A handbook for researchers and practitioners. Boston, Mass. [u.a.: Kluwer.

Madura, J., & Madura, J. (2008). International corporate finance. Australia: Thomson.

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