TM 745 Forecasting for Business

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TM 745 Forecasting for Business
TechnologyPaula Jensen
1st Session 1/11/2012 Chapter 1 Introduction to
Business Forecasting

• South Dakota School of Mines and Technology,
  Rapid City

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Agenda

• Class Overview/Syllabus highlights
• Assignment
• Chapter 1 by Guest Lecturer Dr. Stuart Kellogg
• Business Forecasting 6th Edition J. Holton
  Wilson Barry KeatingMcGraw-Hill

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Instructor Information Instructor Information
Instructor Paula Jensen
Office Location IE/CM 320
Office Hours CM 320 M,W 200-300 pm IER T,TH, F 1100-1150 AM E-mail for an appointment outside of office hours.
Office Phone [phone]
E-mail paula.jensen_at_sdsmt.edu
Website pjensen.sdsmt.edu
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Course Materials

• Powerpoints Class Information
• Website pjensen.sdsmt.edu via the ENGM 745
• Engineering Notebook 9-3/4" x 7-1/2", 5x5
  quad-ruled, 80-100 pp. (approx.)
• Engineering/Scientific calculator
• Book Business Forecasting 6th Edition J.
  Holton Wilson Barry KeatingMcGraw-Hill
• One case from Harvard Business Review

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Prerequisites

• Probability and Statistics
• Understanding of Excel/Spreadsheet software.
• It is expected that students will be able to
  access and download internet files.

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Course Objective

• to educate prospective managers about the
  philosophies and tools of sound forecasting
  principles
• to provide technical managers with a theoretical
  basis for statistical forecasting
• to provide technical managers with the
  fundamentals methods available for technological
  and qualitative forecasts

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Evaluation Procedures

60 - 2 Exams 20 - 1 Project 20 - Interaction A 90-100 B 80-89 C 70-79 D 60-69 F lt 60
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Exams

• Students signed up for the on-campus section are
  required to take the test at the given time.
• Make-up Exams available for University-Approved
  reasons.
• All exams are open engineering notebook, and use
  of a scientific calculator is encouraged.
• Distance Students need proctors- See Syllabus for
  further details

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Project Interaction Grades

• Project Criteria to be discussed through Class
• Interaction Assignments will include discussions,
  quizzes, and other assignments

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Email Policy

• If you are writing about issues relating to the
  class, make sure the subject line reads ENGM 745
  (subject info) so I can sort my e-mails and
  answer accordingly.
• Please be professional in your e-mails. (no
  texting lingo!)

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Academic Honesty

• Cheating use or attempted use of unauthorized
  materials, information or study aids
• Tampering altering or interfering with
  evaluation instruments and documents
• Fabrication falsification or invention of any
  information
• Assisting helping another commit an act of
  academic dishonesty
• Plagiarism representing the words or ideas of
  another as one's own

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ADA

• Students with special needs or requiring special
  accommodations should contact the instructor
  and/or the campus ADA coordinator, Jolie McCoy,
  at 394-1924 at the earliest opportunity.

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First Assignment

• Send me a contact info e-mail. Include all
  important contact information phones, e-mail, and
  mail addresses. Preferred mode.
• Send via e-mail a Current Resume
• Problems 1,4, 8 in chapter 1 I dont need
  these sent. I will post solutions.

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Introduction to Business Forecasting
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(No Transcript)
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Quantitative Forecasting Has Become Widely
Accepted

• Intuition alone no longer acceptable.
• Used in
• Future Sales
• Inventory needs
• Personnel requirements
• Judgment still is needed

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Forecasting in Business Today

• Two Professional Societies
• Accountants costs, revenues (tax plans)
• Personnel recruitment, changes in workforce
• Finance cash flows
• Production raw-material needs finished goods
  inventory
• Marketing sales

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Forecasting in Business Today

• mid-80s 94 large American firmsused sales
  forecasts
• Krispy Kreme
• New stores model with errors of lt 1
• Bell Atlantic
• Data warehouse (shared) of monthly history
• Subjective, regression, time series,
• Forecasts monitored compared

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Forecasting in Business Today

• Columbia Gas (natural gas company)
• Design Day Forecast (supply)
• Gas supply, transportation capacity, storage
  capacity, related
• Daily Operational (demand)
• Regression on temperatures, wind speed, day of
  the week, etc.

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Forecasting in Business Today

• Segix Italia (Pharmaceutical company)
• Marketing forecasts for seven main drugs
• Targets for sales representatives
• Pharmaceuticals in Singapore
• Glaxo-Wellcome, Bayer, Pfizer, Bristol-Myers
  Squibb
• HR, Strategic planning, sales
• Quantitative judgments

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Forecasting in Business Today

• Fiat Auto (2 million vehicles annually)
• All areas use centrally prepared forecasts
• Use macro-economic data as inputs
• From totals sales to SKUs
• Douglas Aircraft
• Top down (miles flown in 32 areas)
• Bottom up (160 Airlines studied)

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Forecasting in Business Today

• Trans World Airlines
• Uses a top down (from total market) approach for
  sales
• Regression Trend models
• Brake Parts Inc.
• 250,000 SKUs
• Forecast system saves 6M/mo.
• 19 time series methods

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Forecasting in the Public and Not-for-Profit
Sectors

• Police calls for service by cruiser district
• State government
• Texas Personal income, electricity sales,
  employment, tax revenues
• California national economic models, state
  submodel, tax revenues, cash flow models
• Hospitals staff, procedures,

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Collaborative Forecasting

• Manufacturers forecast gt RetailersRetailers
  extra info gt Manufacturers
• Lower Inventory
• Fewer unplanned shipments or runs
• Reduced Stockouts
• Increase customer satisfaction
• Better sales promotions
• Better new product intros
• Respond to Market changes

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Computer Use and Quantitative Forecasting

• Computer use common by mid 80s
• Packages run from 100 to thousands
• PC systems generally have replaced mainframes for
  state government work
• PCs dominant at conferences
• Chase of Johnson Johnson
• Forecasting 80 math, 20 judgment

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Subjective Forecasting Methods

• Only way to forecast 40 years out
• Sale-Force Composite
• Inform sales staff of data
• Bonus for beating the forecast ??
• Surveys of Customers/Population
• Jury of Executive Opinion
• The Delphi Method (Experts)

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New-Product Forecasting

• A special consideration
• Surveys
• Test marketing ( Indy, K-zoo, not KC)
• Analog Forecasts movie toys

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New Product Short Life Cycle
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New Product Short Life Cycle
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New Product Short Life Cycle
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Product Life Cycle
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Bass Model
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Two Simple Naive Models (4th)
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Two Simple Naive Models (4th)
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Notation for Forecasts

• Let
• At Actual value
• Ft Forecast value
• n number of periods in calculation
• et At - Ft forecast error
• Subscripts are important
• Now is t, future, - past

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Evaluating Forecasts
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Evaluating Forecasts
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Evaluating Forecasts
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Measurement Errors
Standard Deviation
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Measurement Errors
Standard Deviation
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Measurement Errors
MAE
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Measurement Errors
MAE
In general, 0.8(.193) 0.154
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Measurement Errors
Mean Error
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Measurement Errors
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Using Multiple Forecasts

• Use judgment
• ReferenceCombining Subjective andObjective
  Forecasts.

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Sources of Data

• Internal records
• Timeliness formatting problems
• Government syndicated services (good)
• Web
• Used by govt syndicated
• Sites changes

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Domestic Car Sales (4th ed ex.)
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Domestic Car Sales (4th ed ex)
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Domestic Car Sales (4th ed ex)
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Forecasting Fundamentals
Consider the following sales data over a 12
month period.
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Summary Statistics
Mean
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Summary Statistics
Median
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Summary Statistics
Mode
No number repeats no mode
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Summary Statistics
Modal Range
2.31 - 2.47
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Summary Statistics
Modal Range
2.5 to 3.0
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Overview of the Text

• Ch 1 Intro
• Ch 2 Forecast Process (more Intro)
• Ch 3 MA Exponential Smoothing
• Ch 4 Regression
• Ch 5 Multiple Regression
• Ch 6 Time-Series Decomposition
• Ch 7 ARIMA Box-Jenkins
• Ch 8 Combining Forecasts
• Ch 9 Forecast Implementation

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Upcoming Events

• No Class next week
• Figure out what your log-in/password is to D2l if
  you have not yet. It is the same as WebAdvisor -
  (Here is the website for D2L
  https//d2l.sdbor.edu/)
• Watch U-tube videos posted on Website
• Discussions on D2L- Ready 1/20/2012
• Read Chapter 2 for Class on 1/25/2012