Operations Management: An Integrated Approach, 5th Edition

FOCUS FORECASTING

Focus forecasting is a forecasting approach that has gained some popularity in business. It was developed by Bernie Smith,² who argues that statistical methods do not work well for forecasting. He believes simple rules that have worked well in the past are best used to forecast the future. The idea behind focus forecasting is to test these rules on past data and evaluate how they perform. New rules can be added at any time, and old ones that have not performed well can be eliminated.

Focus forecasting uses a computer simulation program that evaluates the forecast performance of a number of rules on past data. The program keeps track of the rules and evaluates how well they perform. Following are some examples of rules:

1. We will sell over the next three months what we sold over the last three months.
2. What we sold in a three-month period last year, we will sell in the same three month period this year.
3. We will sell over the next three months 5 percent of what we sold over the last three months.
4. We will sell over the next three months 15 percent of what we sold over the same three-month period last year.

You can see that these rules use commonsense concepts. In focus forecasting, managers can come up with any new rules that they believe reflect accurate forecasts in their business and then test their value on historical data.

Smith claims to have achieved great success with focus forecasting. He states that he has compared its accuracy to that of conventional methods, ...