Forecasting Is A Planning Tool

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Today’s economy is known for increased competition, rapid development of products, and a variety of product options resulting in shorter lifecycles of products and unpredictable demand patterns. These new situations in the marketplace demand stronger forecasting techniques (Maaβ et al, 2014). According to the Business Dictionary, forecasting is a planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends. These estimates are projected into coming years by using techniques such as exponential smoothing, moving averages and the Delphi method (Forecasting, n.d.). “Several operations decisions are based on proper forecasts of future…show more content…
These types of methods are usually used for long-term planning and are especially useful when introducing a new product into the market. Quantitative methods identify patterns and consistent trends from the analysis of historical data. These types of methods are usually used for short-term planning. Two techniques that may be used to develop effective forecasts for short-term planning horizons are moving averages and exponential smoothing. These two techniques are simple mathematical means for converting historical information into forecasts (Jacobs et al, 2011). “The objective is to smooth out the random fluctuations while being sensitive to changes that may be taking place with the underlying average” (Jacobs et al, 2011). The moving averages technique uses a selected number of past periods of data. Since short-term planning is the goal for which we are using this technique, it only makes sense to use the most recent periods of data. More recent data will reveal the current conditions of the market. The moving average changes each time a new period of data is added to the mix. The average of the recent test scores is an 85, the average of the last test scores was an 87. A professor can forecast the average for the next test to be an 86 [(85 + 87)/2 = 86]. The professor should only include data from test scores that come from the same books, lectures, and information used to teach the
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