ADDIS ABABA SCIENCE
& TECHNOLOGY
UNIVERSITY
College of Electrical & Mechanical
Engineering
Department of Mechanical Engineering
Industrial Management and Engineering Economics
Name : Mati Bayisa
Id No Ets 0683/11
Submitted to – Mrs Meron
Due to – April 27, 2022
Forecasting
Forecasting is the process of estimating or predicting future events or trends based on past and
current data. It is an essential tool that helps businesses to plan for the future, make informed
decisions, and manage risks. Forecasting can be used for a wide range of applications, such as
sales forecasting, demand forecasting, financial forecasting, and inventory forecasting.
The practice of predicting future patterns in industrial activities like manufacturing, production,
and supply chain management is known as industrial forecasting. Industrial businesses need
this application to manage inventory levels, plan and optimize their operations, and allocate
resources..wisely.
Businesses must evaluate historical data, spot patterns, trends, and linkages, then create models
to predict future results in order to generate reliable projections. Numerous techniques,
including qualitative and quantitative techniques, can be used to accomplish this.
To predict future occurrences, qualitative forecasting techniques rely on professional
assessments, market analysis, and surveys. When historical data is not accessible or when the
data is too complicated for quantitative analysis, several methods can be used. Additionally,
qualitative approaches can be used to forecast difficult-to-measure or -predict events like
consumer preferences, regulatory changes, or technology breakthroughs.
Quantitative forecasting methods, on the other hand, use statistical techniques, mathematical
models, and historical data to predict future outcomes. These methods are suitable for situations
where there is a significant amount of historical data available, and where the data is relatively
easy to analyze. Quantitative methods are also useful for forecasting events that can be
measured and predicted with a high degree of accuracy, such as sales, production, and
inventory levels.
The three quantitative forecasting techniques that are most frequently employed are time series
analysis, regression analysis, and scenario analysis. To find patterns, trends, and seasonality,
historical data must be examined using time series analysis. A forecasting model that can
predict future results based on past performance is then created using this data.
Performing regression analysis entails determining the primary factors, such as price,
marketing, and advertising, that contributed to a specific occurrence or trend. The relationship
between these drivers and the event or trend is then utilized to create a forecasting model that
may foretell future results depending on modifications to the drivers.
Scenario analysis involves evaluating different scenarios and their impact on future outcomes.
This technique is very helpful for seeing prospective risks and opportunities, as well as for
creating backup plans to take advantage of risks and mitigate opportunities.
To add more resource there are books that can explain further about forecasting
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Daniel Kitaw, in his book "Industrial Management and Engineering Economics,"
demonstrates how important forecasting is for businesses to predict future demand, plan
for capacity, and allocate resources wisely. It is a crucial component of strategic
planning that enables businesses to recognize market opportunities and dangers.
In his book "Handbook of Industrial Management," Max P.E. Kurtz points out that
forecasting is essential to the performance of businesses functioning in dynamic and
quickly changing settings. It lets businesses to take advantage of opportunities, reduce
risks, and adapt to changing market conditions.
Jay Heizer and Barry Render, in their book "Operations Management," Make clear that
forecasting is necessary for efficient supply chain management. Businesses can use
forecasting to plan for inventory levels, production schedules, and transportation needs.
Overall, forecasting is a vital tool that supports firms in future planning, decision-making, and
risk management. Businesses may create precise projections that help them meet their
objectives and remain ahead of the competition by combining qualitative and quantitative
methodologies.
References
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Forecasting: What It Is, How It’s Used in Business and Investing (investopedia.com)
Forecasting - Overview, Methods and Features, Steps (corporatefinanceinstitute.com)
Time Series Forecasting: Definition & Examples | Tableau.com
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Daniel kitaw, industrial management and engineering economics , 2007
2.Heizer , jay and Render , Barry: Operation management , 8th ed, 2006
3.Kurtz. Max P.E., Hand book of industrial management , new york : McGraw Hill
Inc., 1984