Forecasting Methods

1713 Words Apr 8th, 2006 7 Pages

All businesses are confronted with the general problem of having to make decisions under conditions of uncertainty. Management must understand the nature of demand and competition in order to develop realistic business plans, determine a strategic vision for the organization, and determine technology and infrastructure needs. To address these challenges, forecasting is used. According to Makridakis (1989), forecasting future events can be characterized as the search for answers to one or more of the following questions:
„X What new economic, technical, or sociological forces is the organization likely to face in both the near and long term?
„X When might these forces impact the firm¡¦s objective environment?
„X Who is likely
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Economists relay on this type of forecasting model to forecast business cycles and related developments. This method could prove inaccurate if the forces that drove past events are no longer present.
„X Market Research Forecasting: This forecasting method collects data in a variety of ways such as surveys, interviews and focus groups to evaluate the purchase patterns and attitudes of current and potential buyers of a good or service. Designers of goods and services use this method to understand their current customers and the buyers they would like to serve.
„X Dlephi Method: The Delphi method compiles forecasts through sequential, independent responses by a group of experts to a series of questionnaires. The forecaster compiles and analyses the respondents¡¦ input and develops a new questionnaire for the same group of experts. This sequence works towards consensus that reflects input from all of the experts while preventing any one individual from dominating the process (Chase, 2005).

Quantitative Techniques Quantitative forecasting techniques transform input in the form of numerical data into forecasts using methods in one of three categories. Each category of quantitative forecasting methods assumes that past events provide an excellent basis for enhancing the understanding of likely future outcomes.
„X Time Series Analysis: Time series analysis is based on the premise that data

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