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So, we have been discussing a lot of forecasting techniques these past few days.

We
knew that, in general, there are two types of forecasting namely qualitative and
quantitative forecasting. But my topic mainly focused on choosing the right and
appropriate quantitative forecasting methods.
According to Notre Dame Professor Barry Keating, an expert in business forecasting, "One of the ways you
can be better than your competitor is not just by offering a better product," "It's by forecasting better than your
competitor does."
So let us examine the core of several forecasting techniques in order to maximize its usefulness. According to
the book of Stevenson, the two most important factors to consider are cost and accuracy. Again, the two
important factors are____
Cost refers to how much money is bugedted for generating the forecast. This includes the salaries of the
forecasting team, the data gathering, and the information generation to end users which are most likely the
management.
Cost also refers to what are the possible cost of errors. Of course, errors are inevitable. It is immutable and the
only remedy is to minimize it. Cost of error can be divided into two. The cost of avoiding such error and the
possible cost or loss in case the forecasting fails.
So we already understood what cost is. Let us proceed to the next important factor which is ____. I have a
question for everyone, Who can relate accuracy to cost?
The relationship of accuracy and cost is directly proportional. In laymans term, the higher the cost of
forecasting, the higher the accuracy of the forecast.
I have another question, consider yourself as a manager. You are given two options by your forecasting team.
One is, the most accurate and the second is the least costly, which one would you choose?
Most of you would think that the most accurate forecast would suffice but it has a counterpart of a very high
cost which is a very risky move when it fails. The least costly would also be a bad move for the accuracy is
compromised. Stevenson suggested that it is important to consider cost-accuracy trade-off carefully by making
combination of the two which Is deemed best for the management.
Stevenson added that there are other factors to consider which are:
The availablility of historical data. Basic logic is, how can you quantitatively forecast using for example trend or
time-series when you dont have historical data. Most likely, if this happens, you will switch to qualitative
forecasting.
Availability of computer software. The previous groups have discussed few complex forecasting techniques
which needs sophisticated mathematical operation. Large companies develop software to aid and eliminate this
problem. If your company has this kind of techonology, most likely, you are to utilize those complex forecasting
techniques which are likely to produce more accurate data.

The Time Needed for the Forecast. This includes the time needed to gather the historical data, proccessing
those data by analyzing each element and the time needed to convert it into finished forecast and the
interpretation thereof.
The nature of the forecast with respect to time is also important. It is whether the forecast is short range or long
range. Short range forecast when only considers fewer data to forecast shorter periods. While long range
forecast are used to forecast relatively longer periods.
So if you want to forecast the sales on the next three months, you can use moving average or exoponential
smoothing. Otherwise, qualitative forecasting techniques are more suitable for long range according to
Stevenson.
Now let us use this table as a guide for selecting a forecasting method.
Lets have a little recap on the following terms:
Simple exponential smoothing a weighted average method based on previous forecast plus a percentage of
the forecast of error.
Trend adjusted ecponential smoothing a variation of exponential smoothing when a time series exhibit a linear
trend
Trend Model uses linear equation to develop forecast when trend is present
Seasonal regularly repeating movements in series values that can be tied to recurring events.
Linear Regression statistical tool to model the relationship of variables of forecast.

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