MULOK, KHALIDA BONGAROS

PEM 304 (Seminar in Strategic Planning and Management)

PhD Educational Management
First Semester, AY 2022-2023

Professor: Montia Jamilah D. Sarip, PhD

Report Assignment: FORECASTING

FORECASTING

 Forecasting is the art and science of predicting what will happen in the future.
Sometimes that is determined by a mathematical method; sometimes it is based on the
intuition of the operations manager. Most forecasts and end decisions are a
combination of both.
 a technique of predicting the future based on the results of previous data. It involves a
detailed analysis of past and present trends or events to predict future events. It uses
statistical tools and techniques. Therefore, it is also called Statistical analysis.
 basically, it is a decision-making tool that helps businesses cope with the impact of
the future’s uncertainty by analyzing historical data and trends. It is a planning tool
that enables businesses to chart their next moves and create budgets that will
hopefully cover whatever uncertainties may occur.
 It acts as a planning tool that helps enterprises to get ready for the uncertainty that can
occur in the future. It begins with management's experience.
 Managers have two tools at their disposal by which they use in making decisions:
actual and forecasts.

Advantages of Forecasting:

o better utilization of resources;

o formulating business plans;
o enhance the quality of management;
o helps in establishing a new business model; and
o It helps in making the best managerial decisions.

Forecasting is conducted by Time Horizons:

1. Short range forecast. While it can be up to one year, this forecast is usually used for
three months or less. It is used for planning purchases, hiring, job assignments,
production levels, and the like.
2. Medium range forecast. This is generally three months to three years. Medium range
forecasts are used for sales and production planning, budgeting, and analysis of
different operating plans.
3. Long range forecast. Generally three years or more in time span, it is used for new
products, capital expenditures, facility expansion, relocation, and research and
development.
 Medium and long range forecasts differ from short range forecasts by other characteristics
as well.

1. Medium and long range forecasts are more comprehensive in nature. They support
and guide management decisions in planning products, processes, and plants. A new
plant can take seven or eight years from the time it is thought of, until it is ready to
move into and become functional.
2. Short term forecasts use different methodologies than the others. Most short term
forecasts are quantitative in nature and use existing data in mathematical formulas to
anticipate immediate future needs and impacts.
3. Short term forecasts are more accurate than medium or long range forecasts. A lot can
change in three months, a year, three years, and longer. Factors that could influence
those forecasts change every day. Short term forecasts need to be updated regularly to
maintain their effectiveness.

TYPES OF FORECASTING
There are three major types of forecasting, regardless of time horizon, that are used by
organizations.
1. Economic forecasts address the business cycle. They predict housing starts, inflation
rates, money supplies, and other indicators.
2. Technological forecasts monitor rates of technological progress. This keeps
organizations abreast of trends and can result in exciting new products. New products
may require new facilities and equipment, which must be planned for in the
appropriate time frame.
3. Demand forecasts deal with the company's products and estimate consumer demand.
These are also referred to as sales forecasts, which have multiple purposes. In addition
to driving scheduling, production, and capacity, they are also inputs to financial,
personnel, and marketing future plans.
Features of Forecasting
Here are some features for making a forecast:
1. Involves future events
Forecasts are created to anticipate future possibilities, scope, etc making them
important for product planning.
2. Based on past and present events
Forecasts are based on points of view, intuition, guesses, as well as on actual facts,
figures, and other related data. All the factors that go into forming a forecast reflect to
some extent what happened with the business in the past and what is likely to occur in
the future.
3. Uses forecasting techniques
Most organizations use the quantitative method, particularly in the planning and
budgeting process.

METHODS OF FORECASTING

1. Qualitative Forecasting Method

2. Quantitative Forecasting Method
1. Qualitative Forecasting Method
o It offers subjective results, as it consists of personal judgments by experts or
forecasters. Forecasts are generally biased because they are based on the expert’s
knowledge, experience, and rarely rely on data.
o These method is based on emotions, intuitions, judgments, personal experiences,
and opinions.
1.1 Delphi Method
The agreement of a group of experts in consensus is required to conclude in the
Delphi method. This method involves a discussion between experts on a given problem or
situation. An argument or brainstorming is done to complete that everyone involved in the
debate agrees to.
1.2 Market Survey
In a market survey, interviews and surveys of customers are made to understand the
task of the customer and tap the trend well in advance to deliver the right product or
service according to the changing needs of the customer.
1.3 Executive Opinion
As the name suggests, the executives or managers are involved in such forecasting.
This method is very similar to the Delphi method; however, the only difference here is
that the executives may or may not be experts of the matter in question, albeit they have
the experience to understand the problem or situation and formulate a forecasting method
that would bring out the best possible result.
1.4 Sales Force Composite
The information and intuition of the salesperson determine the needs of the customer
and estimate the sales in the particular region or area assigned to the salesperson.
2. QUANTITATIVE FORECASTING METHOD
o It is a numerical process, making it consistent and aim-oriented. It drives away
from relying the results on opinion and intuition, instead of utilizing large
amounts of data and figures that are interpreted.
o These methods depend wholly on mathematical or quantitative models. The
outcome of this method relies entirely on mathematical calculations.
2.1 Time Series Models
Time series models look at historical data and identify patterns in the past data to
arrive at a point in the future based on these historical values.
2.2 Associative Models
Associative models look at the variable that is being forecasted as being related to
other variables in the system, which means each variable is associated with the other
variable in the system. The forecast projections are made based on these associations.

STEPS IN FORECASTING:
1. Determine what the forecast is for.
2. Select the items for the forecast.
3. Select the time horizon.
4. Select the forecast model type/method
5. Gather data
6. Make the forecast.
7. Verify and implement the results.