Forecasting Techniques

Dr. Sangita Warade

Assistant Professor School of Agri-Business Management, Nagpur Dr. PDKV,Akola

Forecasting Concept A prediction or estimation of future situation,

under a given condition. Example : Prices , production, area.

Need of Forecasting
Need: Decision making : Operational, Tactical, Managerial Minimize risk and uncertainty

Need of Forecasting
Parameters of forecasting
Level of inputs Manpower Output/ Demand

Need of Forecasting
Parameters of forecasting : Strategic issues
Actions and reactions of competitors distributors government suppliers collaborators

Methods of Forecasting

A)Opinion Polling Method

1. Consumer Survey :

quality, price, safety etc.

Methods of Forecasting
A)Opinion Polling Method 2. Sale Force opinion: Collection, margin, credit

Methods of Forecasting
A)Opinion Polling Method 3. Delphi Method: Group of experts Comprehensive and deep discussion on a topic Conclusion and result is forecasted

Methods of Forecasting
A) Judgmental Method 1. Unaided judgment common practice to ask the experts what will happen?

Methods of Forecasting
B) Judgmental Method 2. Judgmental decomposition The forecasting problem is divided into parts and each part is forecasted. It is done to increase accuracy and easiness.

Methods of Forecasting
B)Judgmental Method 3. Judgmental Bootstrapping Subjective information is converted to structured analogies. So that quantitative techniques may be applied to it. Experts forecast one parameter for different situations.

Methods of Forecasting
B) Judgmental Method 4. Structured analogies The outcomes of similar situation from past( analogies) may help to forecast new targets.

Methods of Forecasting
B) Judgmental Method 5. Game Theory Searching best strategies amongst the actions are reactions of the competitors.

Methods of Forecasting
B) Judgmental Method 9. Conjoint Analysis Various groups of consumers have difference choices for the features of the product. Each consumer group is regressed with features opted /choices.

Methods of Forecasting
C) Mechanical Extrapolation Method Data is mechanical input 1. Straight Line (Ordinary Least Square) Y= a+bX Y = dependant X = independent a = constant, b= coefficient

Methods of Forecasting
C) Mechanical Extrapolation Method 2. Moving Average Average of subsequent figures it may be triennial, 5 years average Smoothen data.

Methods of Forecasting
C) Mechanical Extrapolation Method 3. Exponential : Weight : Y=w1A + (w1-1)B Weight is applied on trial and error Select the model having low MSE or MAPE

Methods of Forecasting
C) Mechanical Extrapolation Method 4. ARIMA (Autoregressive integrated moving average) Lag term Order are indicated by p Y = Yt-1 + dt + ut-1 differing d lag of u term q

Methods of Forecasting
D) Barometric Method 1. Leading : selected variable varies with other specific
variable. Ex: Loan demand varies with Housing School uniforms with Birth rate 2. Coincident: Selected data variable varies with general economic variable and market trend. Ex: National Income and Employment

Methods of Forecasting
D) Barometric Method 3. Lagging: Selected Variable varies amongst itself.
Ex: Wages lags overtime as compared to price index

Methods of Forecasting
D) Barometric Method
4. Index Number: It measures trend in individual or group of related variables over time
a) Diffusion indices: It measures the contribution of

positive momentum only. It measure by diffusing series in to 0.5, 1, 0 b)Composite Indices: Weighted average of chosen indicators

Methods of Forecasting
E) Statistical Method 1. Naive Model : It believes the recent periods are
the best predictors of the future Yt+1 = Yt 2. Correlation (magnitude and direction) Regression( impact of one over other: casual) linear, nonlinear, Single, Multiple, quadratic, exponential etc. by Sir Francis Galton

Methods of Forecasting
F) Econometric model. It add the perception of what influence the future value of the variable for forecast. It involve effect of non countable variables (u error term/random term)
Y= a+bX+u

Methods of Forecasting
G) Simulation Technique. It simulate(imitate) the some real thing available, state of affairs, or process. Input level changes to get fixed output

wooden mechanical horse

simulator

Methods of Forecasting
H) Artificial Neural Network The network of the activities and destinations designed to forecast the most possible time saving and economical activity.

Methods of Forecasting
I) Demand Forecasting of new products.
a) Test marketing New Product Sampling Running Protocol b) Survey of consumer intension(about product) What type of product is required

Methods of Forecasting
I) Demand Forecasting of new products.
c) Bounding Curves Method: Curve indicates market share of existing brands and the period to launch the product.

Methods of Forecasting
I) Demand Forecasting of new products.
d) Life Cycle segmentation analysis.