1
Lesson 4
Management Science
Prof.: Dr. Marilou B. Mondana
Class: BSA 2-11
TTHS: 7:30-10:30
Overview
Forecasting is the process of making predictions of the future based on past and present
data and most commonly by analysis of trends. A commonplace example might be
estimation of some variable of interest at some specified future date.
Module Objectives
After completion of this module, the students should be able to:
• Learn the concept of forecasting
• Know the importance of forecasting particularly in business operations
• Identify the types of forecasting
• Calculate forecasts using the different methods
Course Materials: Introduction to Management Science by: Bernard
W. Taylor III, ed. 11, Virginia Polytechnic Institute & State University
Discussion
There are two types of forecasting – qualitative and quantitative. … These methods
depend on the judgment of experts to generate forecasts. On the other hand,
quantitative forecasting methods are used when historical data across categories and
periods is available, and can be analyzed to get estimates.
Elements of Forecasting:
• Developing the ground work: It carries out an orderly investigation of products, company and
industry. ...
• Estimating future business: …
• Comparing actual with estimated results: …
• Refining the Forecast Process:
What are the benefits of forecasting?
Accurate forecasting helps you reduce unnecessary spending, schedule production
and staffing, avoid missing potential opportunities and manage your cash flow.
• Better Financial Planning. ...
• Improved Staffing. ...
• More Targeted Marketing. …
• Enhanced Production Management.
Three disadvantages of forecasting
• Forecasts are never 100% accurate. Let’s face it: it’s hard to predict the future. …
• gathering, data organizing, and coordination. ...
• It can also be costly.
Importance of Forecasting:
Forecasting provides relevant and reliable information about the past and present
events and the likely future events. This is necessary for sound planning. It gives
confidence to the managers for making important decisions. It is the basis for
making planning premises.
Classifications of forecast
1. Short range – encompasses immediate future and are concerned with the
daily operation of the business firm such as daily demand or resource
requirement.
2. Medium range – encompasses anywhere from one or two months or a year
(i.e., yearly production plan)
3. Long range – encompasses a period longer than 1 or 2 years (i.e. planning
for new products for changing market, build new facilities, secure long term
financing).
