CHAPTER 3
Tuesday, 21 July 2020 10:18 PM
NOTES 3.1 - Forecasts
• Forecasts are a basic input in the decision processes of operations
management because they provide information on future demand.
• Two Aspects of Forecasts
○ Expected level of demand
○ Degree of Accuracy
• Uses of Forecasts in Business Organizations
○ Accounting. New product/process cost estimates, profit projections,
cash management.
○ Finance. Equipment/equipment replacement needs, timing and amount
of funding/borrowing needs.
○ Human resources. Hiring activities, including recruitment,
interviewing, and training; layoff planning, including outplacement
counseling.
○ Marketing. Pricing and promotion, e-business strategies, global
competition strategies.
○ MIS. New/revised information systems, Internet services.
○ Operations. Schedules, capacity planning, work assignments and
workloads, inventory planning, make-or-buy decisions, outsourcing,
project management.
○ Product/service design. Revision of current features, design of new
products or services
• Forecasting is also an important component of which relates to the per
yield management, centage of capacity being used.
• There are two uses for forecasts. One is to help managers and the other plan
the system, is to help them plan the use of the system.
NOTES 3.2 - Features of Common to All Forecasts
• Forecasting techniques generally assume that the same underlying causal
system that existed in the past will continue to exist in the future
• Forecasts are not perfect; actual results usually differ from predicted
values; the presence of randomness precludes a perfect forecast. Allowances
should be made for forecast errors
• Forecasts for groups of items tend to be more accurate than forecasts for
individual items because forecasting errors among items in a group usually
have a canceling effect.
• Forecast accuracy decreases as the time period covered by the forecast—the
time horizon—increases
NOTES 3.3 - Elements
• Timely - certain amount of time is needed
• Accurate - enable users to plan for possible errors
• Reliable - work consistently
• Meaningful Units - choice of units
• In writing - increase the likelihood
• Simple to Understand and Use - fairly simple forecasting
• Cost-effective - benefits should outweigh the costs
DSIOPMA Page 1
Tuesday, 21 July 2020 10:18 PM
NOTES 3.1 - Forecasts
• Forecasts are a basic input in the decision processes of operations
management because they provide information on future demand.
• Two Aspects of Forecasts
○ Expected level of demand
○ Degree of Accuracy
• Uses of Forecasts in Business Organizations
○ Accounting. New product/process cost estimates, profit projections,
cash management.
○ Finance. Equipment/equipment replacement needs, timing and amount
of funding/borrowing needs.
○ Human resources. Hiring activities, including recruitment,
interviewing, and training; layoff planning, including outplacement
counseling.
○ Marketing. Pricing and promotion, e-business strategies, global
competition strategies.
○ MIS. New/revised information systems, Internet services.
○ Operations. Schedules, capacity planning, work assignments and
workloads, inventory planning, make-or-buy decisions, outsourcing,
project management.
○ Product/service design. Revision of current features, design of new
products or services
• Forecasting is also an important component of which relates to the per
yield management, centage of capacity being used.
• There are two uses for forecasts. One is to help managers and the other plan
the system, is to help them plan the use of the system.
NOTES 3.2 - Features of Common to All Forecasts
• Forecasting techniques generally assume that the same underlying causal
system that existed in the past will continue to exist in the future
• Forecasts are not perfect; actual results usually differ from predicted
values; the presence of randomness precludes a perfect forecast. Allowances
should be made for forecast errors
• Forecasts for groups of items tend to be more accurate than forecasts for
individual items because forecasting errors among items in a group usually
have a canceling effect.
• Forecast accuracy decreases as the time period covered by the forecast—the
time horizon—increases
NOTES 3.3 - Elements
• Timely - certain amount of time is needed
• Accurate - enable users to plan for possible errors
• Reliable - work consistently
• Meaningful Units - choice of units
• In writing - increase the likelihood
• Simple to Understand and Use - fairly simple forecasting
• Cost-effective - benefits should outweigh the costs
DSIOPMA Page 1
