Forecasting

Question 1

Identify and describe the two major classes of quantitative business forecasting methods

Answer 1

1. Time-series models: Use patterns from past data to predict a future value or values. These methods are not concerned with causes of patterns, just the patterns in the data.
2. Causal models: Use assumed relationships between the variable being forecasted and other variables to make projections based on those relationships.

Question 2

Identify and describe the two major classes of business forecasting methods.

Answer 2

1. Qualitative: methods that are subjective in nature and based on judgment and opinion.
2. Quantitative: methods that are objective in nature and based on mathematical calculations and determinations.

Question 3

Identify and describe three classes of qualitative business forecasting methods.

Answer 3

1. Executive opinion: The collective judgment and opinion of executives and managers are used to develop a forecast.
2. Market research: Surveys of customers and others are done to determine preferences and other factors as a basis for formulating a forecast.
3. Delphi method: Uses a consensus developed by a group of experts using a multi-stage process for converging on a forecast.

Question 4

Identify the major forms of time-series models (mathematical methods) used for forecasting.

Answer 4

Naive;
Simple mean (average);
Simple moving average;
Weighted moving average;
Exponential smoothing;
Trend-adjusted exponential smoothing;
Seasonal indexes;
Linear trend line.

Question 5

Identify and briefly describe major time-series patterns.

Answer 5

Level - data are relatively constant or stable over time;
Seasonal - data reflect up and down swings over short or intermediated periods of time; each swing of about the same timing and level of change;
Cycles - data reflect up and down swings over a long period of time;
Trend - data reflect a steady and persistent up or down movement over a long period of time;
Random - data reflect unpredictable, erratic variations over time.

Question 6

Identify and briefly describe the major types of causal models used for forecasting.

Answer 6

Regression - uses an equation to relate a dependent variable to one or more independent variables to forecast the dependent variable.
Input-output models - describe the flow from one stage, sector, or other component to another in order to forecast values for either the predecessor or successor stage, sector or other component.
Economic models - specify a statistical relationship between various economic quantities to forecast the value of one using the value of another.

Question 7

Identify the major forms of causal models used for forecasting.

Answer 7

Regression models (linear or non-linear);
Input-Output models;
Economic models.