CHAPTER 3

Overview of Forecasting Methods

As a forecast practitioner, I still find that most forecasts used for decision making are handled judgmentally using intuitive subjective methods with little separation between the task of forecasting and that of decision making. Furthermore, most companies tend to use simple methods that are easy to comprehend and involve judgment by company personnel. The situation is made more complicated as forecast practitioners generally use forecasting methods that their decision makers feel comfortable with, even though those methods may not be the most effective. The most widely used method is “target setting,” which is really not forecasting but actually a goal-setting process. Here companies begin their planning process with a corporate goal to increase sales by some percentage. This target often comes directly from the senior management team as a directive. Everyone then proceeds to back into their targets based on what each business unit manager thinks they can deliver. If they do not meet their prospective targeted goal when totaled, the senior management team either assigns individual targets to each business unit or puts a financial plug (number to close the gap) in place, hoping someone will over-deliver. They use very few if any statistically based forecasts, particularly if the forecast does not meet their objectives or needs. Needless to say, no one attempts to shape demand using data and analytics to identify sales and marketing opportunities ...

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