Introduction to Forecasting

1. Introduction to Forecasting Mechanical Models Time Series Analysis Barometric Models Econometric Models Technological Models

2. Introduction to Forecasting Mechanical Models Naïve Models Proportional Change Moving Averages Exponential Smoothing

3. Introduction to Forecasting Mechanical Models Naïve Models Yt+1 = Yt i.e., if Yt = 100 then Yt+1 = 100

4. Introduction to Forecasting Mechanical Models Proportional Change Yt+1 = Yt* X Where X = some percentage change from the previous period i.e., if Yt = 100 and X = 10% then Yt+1 = (100)(10%) Yt+1 = 110

5. Introduction to Forecasting Mechanical Models Moving Averages Yt+1 = (Yt+ Yt-1 + Yt-2 … Yt-n)/n Where n = the number of time periods to average i.e., n = 3 Yt-2 = 110 Yt-1 = 105 Yt = 100 Yt+1 = (100 + 105 + 110)/3 = 105

6. Introduction to Forecasting Mechanical Models Exponential Smoothing Yt+1 = α (Yt) + (1-α ) (MA) Where α = Faith in most recent MA = Old Moving Average i.e., α = .7 MA = 105 Yt+1 = .7(100) + .3(110) Yt+1 = 70 + 33 = 103

7. Introduction to Forecasting Mechanical Models Time Series Analysis Barometric Models Econometric Models Technological Models

8. Introduction to Forecasting Time Series Trend Cycle Seasonal Noise

9. Introduction to Forecasting Time Series Trend Cycle Seasonal Noise

10. Introduction to Forecasting Mechanical Models Time Series Analysis Barometric Models Econometric Models Technological Models

11. Introduction to Forecasting Barometric Models Leading Indicators Lagging Indicators Coincident Indicators

12. Introduction to Forecasting Barometric Models Leading Indicators Average Work Week - Production Workers, Manufacturing Average Weekly Initial Claims - State Unemployment Insurance Index of Net Business Formation New Orders - Durable Goods Industries Contracts and Orders - Plant and Equipment New Building Permits - Private Housing Change in Manufacturing and Trade Inventories Industrial Materials Prices Stock Prices - 500 Common Stocks Corporate Profits After Taxes Ratio of Price to Unit Labor Cost - Manufacturing Changes in Consumer Installment Debt

13. Introduction to Forecasting Barometric Models Lagging Indicators Unemployment Rate - 15 Weeks and Over Business Expenditures Book Value - Manufacturing and Trade Inventories Labor Cost per Unit of Output Commercial and Industrial Loans Outstanding Bank Rates on Short Term Business Loans

14. Introduction to Forecasting Barometric Models Coincidental Indicators Employees on Nonagricultural Payrolls Unemployment Rate - Total GNP in Current Dollars Industrial Production Personal Income Manufacturing and Trade Sales Sales of Retail Stores

15. Introduction to Forecasting Mechanical Models Time Series Analysis Barometric Models Econometric Models Technological Models

16. Introduction to Forecasting Mechanical Models Time Series Analysis Barometric Models Econometric Models Technological Models

17. Introduction to Forecasting Technological Models (Usually Qualitative) The Delphi Method Forecast by Analogy Growth Curves Extrapolation Normative Methods

18. Introduction to Forecasting The Delphi Method An interactive forecasting method Relies on a panel of experts Experts answer provide predictions A facilitator provides an anonymous summary of predictions with rationale behind them. Experts revise answers after hearing replies of other members This may go on for several rounds, with the range of predictions converging towards the “best" forecast.

19. Introduction to Forecasting Technological Models (Usually Qualitative) The Delphi Method Forecast by Analogy Growth Curves Extrapolation Normative Methods

20. Introduction to Forecasting Technological Models (Usually Qualitative) The Delphi Method Forecast by Analogy Growth Curves Extrapolation Normative Methods

21. Introduction to Forecasting Technological Models (Usually Qualitative) The Delphi Method Forecast by Analogy Growth Curves Extrapolation Normative Methods

22. Introduction to Forecasting Technological Models (Usually Qualitative) The Delphi Method Forecast by Analogy Growth Curves Extrapolation Normative Methods

23. Introduction to Forecasting Normative Methods Judgment Forecasts Identify Future Needs and/or Objectives Determine Requirements to Meet Them Circumstances Actions Technologies Techniques

24. Introduction to Forecasting Normative Methods Techniques Relevance Trees Morphological Models Mission Flow Diagrams

25. Introduction to Forecasting Normative Methods Relevance Trees Like an organizational chart Presents information in a hierarchical structure Begins at high level of abstraction Descends to greater detail

26. Introduction to Forecasting Normative Methods Morphological Models Mapping a discipline for wide perspective of existing solutions and future possibilities Five basic steps: Formulation and definition of a problem; Identification & characterization of parameters; Construction of a multidimensional matrix Morphological box Combinations contain all possible solutions; Evaluation of outcome (feasibility and achievement of desired goals); In-depth analysis of the best options given resources.

27. Introduction to Forecasting Normative Methods Techniques Relevance Trees Morphological Models Mission Flow Diagrams