In This Chapter
Getting acquainted with the fundamental rules of forecasting
Predicting demand using various methods
Finding and measuring forecasting error
How wonderful life would be, especially in the world of operations management, if it were possible to gaze into a crystal ball and accurately predict future events and consumer behavior. Unfortunately, that kind of foresight just isn’t available. The next best thing is a well-developed forecast.
In business, a forecast refers to an estimate or prediction of what is likely to happen in the future. The key words here are estimate and prediction. Without the elusive crystal ball, forecasts, to some degree, are always inaccurate. At best, forecasting is an imprecise science, but not having a forecast to guide decisions about inventory, capacity, and production levels can be fatal to a business.
One of the biggest determinants of financial success is how accurately you can predict demand. If you forecast your demand too high, you may waste resources producing more products than customers will purchase. If you forecast demand too low, you may leave customers disappointed because they can’t purchase your ...