Operations Management: An Integrated Approach, 5th Edition

Chapter Highlights

Three basic principles of forecasting are: forecasts are rarely perfect; forecasts are more accurate for groups or families of items rather than for individual items; and forecasts are more accurate for shorter than longer time horizons.

The forecasting process involves five steps: decide what to forecast; evaluate and analyze appropriate data; select and test a forecasting model; generate the forecast; and monitor forecast accuracy.

Forecasting methods can be classified into two groups: qualitative and quantitative. Qualitative forecasting methods generate a forecast based on the subjective opinion of the forecaster. Some examples of qualitative methods include executive opinion, market research, and the Delphi method. Quantitative forecasting methods are based on mathematical modeling. They can be divided into two categories: time series models and causal models.

Time series models are based on the assumption that all the information needed for forecasting is contained in the time series of data. Causal models assume that the variable being forecast is related ...