CHAPTER 11

MANAGING THE FORECASTING PROCESS

ANSWERS TO ODD-NUMBERED PROBLEMS AND CASES
1. a. One response: Forecasts may not be right, but they improve the odds of being
close to right. More importantly, if there are no agreed upon set of forecasts to
drive planning, then different groups may develop own procedures to guide
planning with potential chaos as the result.
b. One response: AnalogyIf you thin education is e!pensive, try ignorance.
"aving a good set of forecasts is lie waling while looing ahead instead of at
your shoes. #lanning without forecasts will lead to inefficient operations, sub
optimal returns on investment, poor customer service, and so forth.

c. One response: $ood forecasts re%uire not only good %uantitative sills, they also
re%uire an in&depth understanding of the business or, more generally, the
forecasting environment and, ultimately, good communication sills to sell
forecasts to management.
CASE 11-1: BOUNDARY ELECTRONICS
'. (his case invites students to thin about how to use some of the forecasting techni%ues
discussed in )hapter ''. $uy #reston is trying to get his managers to thin about the
long&range position of the company, as opposed to the short range thining that most
managers are involved in on a daily basis. (he case might generate a class discussion
about the tendency of managers to shorten their planning hori*ons too much in the
daily press of business.
$uy has ased his managers to write scenarios for the future: a worst case, a status %uo,
and a most liely scenario. "is ne!t tas might be to discuss each of these three
possibilities, and to discuss any differences of opinion that might emerge. A second
round of written scenarios by each participant could then follow this.
+. (here are two possible benefits from $uy,s retreat. First, he may gain valuable insights
into the company,s future to use in his own long range thining. -econd, and
probably more important, his managers may come away with an increased
awareness of the importance of e!panding their planning hori*ons. If this is true,
the company will probably be in a better position to face the future.
CASE 11-2: BUSBY ASSOCIATES
'. -ince "olt.s linear smoothing incorporates simple e!ponential smoothing as a special
'/+
case 01 2 34, would e!pect "olt.s procedure to fit and forecast better here.
(herefore, there is no reason to consider a combination of forecasts. )ombining
forecasts is best considered when the sets of forecasts are produced by different
procedures.

+. After the results for a few additional %uarters 0say 54 become available, the analysis
can be re&done to see if the current model is still viable. Model parameters can be
re&estimated after each new observation if appropriate computer software is available.
CASE 11-3: CONSUMER CREDIT COUNSELING
-tudents should summari*e the results of the analyses of these data in the cases at the
ends of chapters 5 0smoothing4, 6 0decomposition4, 7 0simple linear regression4, 8 0regression
with time series data4 and 9 0:o!&;enins methods4. Fits, residual analyses, and forecasts can be
compared. <egardless of the method, there is a fair amount of une!plained variation in the
number of new clients. (his may be a situation where combining forecasts maes sense.
CASE 11-5: ALOMEGA FOOD STORES
'. ;ulie has to choose between two different methods of forecasting her company.s
monthly sales. -tudents should review the results of these two efforts and decide
which offers the better choice. =e find that class presentations by student teams
are valuable as they move the analysis beyond the computer results to simulate
implementing these results in a >real? situation.
@. "aving students, either individually or in teams, prepare a memo to ;ulie outlining
their analysis and choice of forecasting method is an alternative to class
presentations. Again, the results of this case do not point to a >right? answer, but
rather to the necessity of choosing a forecasting method and Austifying its use. Bon&
%uantitative considerations should come into play: the fact that ;ulie is the first
female president of Alomega, that she Aumped over several %ualified candidates for
the Aob, and that one of her subordinates 0;acson (ilson4 seems to be unimpressed
with both her and any computer analysis.
+. Other forecasting methods are certainly possible in this case. An assignment
beyond a consideration of choosing between decomposition and multiple
regression would be to find a superior forecasting method using any available
software. Again, the %ualitative considerations should be considered, including the
necessity of balancing the comple!ity and accuracy of a forecasting method with its
acceptance and use by the management team.
5. Only if she finds two good methods.
'/5