King Abdulaziz University Faculty of Engineering Industrial Engineering Dept.

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King Abdulaziz UniversityFaculty of
EngineeringIndustrial Engineering Dept.

• IE 436
• Dynamic Forecasting

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CHAPTER 1 Introduction to Forecasting
The History of Forecasting

• Some Techniques In the nineteenth century.
• Some Others only recently.
• Forecasting Process Continue to grow.
• Consumers of forecasts (Managers)
• More attention to Forecasting.

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Is Forecasting Necessary?

• All organizations operate in uncertainty.
• Decisions affecting the future must be made.
• Judgments are not so accurate.
• World has always been changing.
• Competition has become more keen.

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Who needs forecasts ?

• All types of organizations
• (large-small, private-public).
• All functional lines
• (finance, marketing, personnel, production
  areas)

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Some Questions that need forecasting

• Increase advertising by 10 sales?
• Over the next 2 years revenues?
• How many units might we sell?
• To explain sales variability
• factors to consider?
• Loan balance over the next 10 years?

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Types of Forecasts

• Time horizon (long, intermediate, short).
• Level of details (micro-macro).
• Methods used (Quantitative-qualitative).
• Note judgment must be used along with
  quantitative forecasting procedures.

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Range of Forecasting
Range Period Variables to be forecasted
Short Term 1 day to 1 year, )1 season) Demand forecasting, staffing levels, purchasing, inventory levels
Medium Term 1 season to 2 years Aggregate planning, capacity planning, sales forecasts
Long Term 5 and more years into the future RD, plant location, product planning
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Forecasting Steps

• 1. Problem Formulation and
• Data collection.
• 2. Data manipulation and cleaning.
• 3. Model building and evaluation.
• 4. Model implementation
• (the actual Forecast).
• 5. Forecast evaluation.

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Forecasting Steps