Additional Forecasting

Slides
Dr. Sunil D. Lakdawala

Contents

Forecasting Methods in Practice

Judgmental Forecasting

Business Forecasting

Forecasting Methods in
Complex Models (Non-linear, Neural Network, etc.)
Practice

might give better fit, but do not give better forecast. For
example, in many cases de-seasonalized Nave model
(NF2) gives good result.
Averaging of the forecasts of more than one method
results in more accurate forecast
Time series model give better forecast than causal
model. However, causal model gives better explanation

Business Forecasting

Forecasting Methods in
Seasonality faces
no special problem for any method
Practice
(Cont)

(can be done using time decomposition).

If magnitude of randomness is more than trend-cycle component,

[case with many short term forecasting], single exponential
smoothening method gives better result
If magnitude of trend-cycle component is more than randomness
[case with many medium term forecasting], models that take care
of trend (e.g. ARIMA) gives better result

Business Forecasting

Judgmental Forecasting

Accuracy of judgmental forecast is, on average, inferior to

quantitative ones
Cost of judgmental forecast is more than quantitative ones
Changes can only be taken into account by judgmental
forecast
Bias (Pg 500)
Inconsistency
Conservatism
Recency
Availability
Illusory correlations
Search for supportive evidence
Regression effects
Business Forecasting

Judgmental Forecasting
Bias (Cont)
(Cont)

Attribution of success and failure

Optimism and wishful thinking
Underestimating uncertainty
Selective perception

Combing statistical and judgmental forecasts

Anchoring initial forecast objectively (participants are
not asked to make a forecast from scratch; rather
modify the quantitative one considering likely
changes)

Business Forecasting

Judgmental Forecasting

(Cont)
Combing statistical and judgmental forecasts
(Cont)

Only consider those factors where large majority

agrees as influential and extent of influence (see pg
507). [e.g. ignore factors where there is no general
consensus. Smaller number of such factors are likely
to get better forecast than consider too many factors]
Keep the records (which factors were considered to
influence how much), so that one can compare later
on. One can learn from the same

Business Forecasting