Lesson 3 FORECASTING ● Delphi − Here inputs are taken collectively

from management, employees and end users.

Forecasting in operations management is the
Every stake holder gets a chance to provide
systematic technique used to predict future input.
outcomes based on historical data. Business
forecasts are a necessity for productively planning the ● Sales force composite − This method uses
predicting future demand by summing up the
operations of a company. Forecasting the required raw
opinion of each sales person about the sales
materials, workforce capacity, and energy requirement
target expected to achieve in respective
along with other requisites are essential for the smooth
territories.
functioning of operations management. Various
methods and techniques and di erent types of ● Market Survey − This approach seeks inputs
forecasting are put to use in organizations based on from past customer data and potential clients
their requirement and resultant outcomes. An about their purchase plans in future.
Marketing personnel are often given the task to
elucidation of the variety of forecasts used in
gather such information as they are the rst
operations management and its implementation is
line of customer contact. Material
brought out here.
procurement sta who are in contact with the
Forecasting Models in Operations Management suppliers can also be used to collect market
intelligence report of competitors who plan
Forecasting in operations management is carried out innovative projects or technologies
based on the size, available information about the
However, this type of forecasting is not free from
company and business goals. As the concept of
judgmental bias.
forecasting is about making intelligent assumptions by
predicting the future and facilitate planning, proper Quantitative
and scienti c models and methods should be adopted ● Time series − This is quantitative techniques
to forecast the outcome. that uses previous data for future predictions.
These types of forecasts are usually done to
Di erent models of forecasting are as discussed
develop long term forecasts as they rely on
below.
historic patterns that relate to a speci c period.
Analyzing monthly sales over a period of ten
years is an example.

● Associative models − These models involve

statistical analysis to forecast. Regression
analysis is mostly used in this type of models to
nd the relation and e ect between two
factors.
Qualitative
Yet another type of forecasting technique is also used
● Judgmental − This type of forecasting relies where predictions are done over di erent range of time.
on judgments from subject matter experts of
● Short − These are forecasts made for shorter
the concerned area or department. It is easy to periods usually for 3 months forward. They are
implement too. commonly used for recruitment projections,
schedules and deciding production levels.
 ● Medium − This ranges from 3 months to a Using one or more of the above-mentioned methods,
year into the future. Budgeting forecasts, sales these are the two most important metrics which you
projections and demand planning are carried might want to consider for forecasting to ensure a
out in medium range forecast. seamless production process.

● Long − Big budget forecasts made towards ● Scheduling − Sta and inventory scheduling
capital expenditures, relocation or expansion, are critical functions to meet demand. This
and innovations come under long term process involves organizing, selecting, and
forecasting. These are typically performed for allocating the necessary resources to complete
more than 3 years. the desired outputs over a period of time. In a
service business, for example, you can use a
Types of Forecasting Methods in Operations
forecast to ensure there are enough front o ce
Management
employees to meet the uctuating demand that
Deriving from the above models, operations often involves attending to immediate
management use the following types of forecasts based customer service requests.
on the requirement speci c to each organization.
● Material requirements planning (MRP) −
Run Rate Forecasting Method This system is used to calculate the materials
needed to manufacture a nal product. MRP
This forecasting type in most commonly used method
in operations management. The past data patterns are requires you to manage inventory, determine if
used to predict demand patterns, predict resource any additional materials are needed, and
availability based of historic trends and graph of schedule production.
nancial requirements at each stages of business Utilizing one or more types of forecasting based on the
process.
business requirement is critical to ensure smooth and
Driver-based Method seamless operational functions.

These are based on key process metrics of operations to How to Implement Forecasting in Operations
predict output. Factors that respond in relation to a Management?
change in another is predicted here. Capacity to meet
market demands based on the rate of production is an Forecasts are to be done accurately for successful
example. implementation and develop plans. The following
principles need to be recognized while implementing
Risk-based Method
forecasts in operations management.
Unforeseen risks could stall the business operations
● Short-term forecasts for higher accuracy −
and result in loss. Forecasting risks and planning
Short-term forecasts uses quantitative data that
accordingly is the best way to overcome business risks.
gives better accuracy than making long term
Assessment and prediction of possible risks including
predictions. Hence it is always productive to
strikes, machine downtime and cost overrun can be
focus on short-term forecasts on a regular basis.
mitigated or reduced if measures to be taken are
planned ahead. Keeping constant communication with ● Acceptance of marginal level of error −
the workforce, ensuring regular maintenance of Prediction is foreseeing future and hence there
production equipment and judicious monitoring of is always a chance of error. All plans based on
operating costs could be initiated based on predictions forecasts must be made taking this fact into
from risk-based forecasting method. account and acknowledging space for error.
 ● Choose aggregate forecasts − Statistically, a
comprehensive data set gives more accurate
analysis. Forecasting sales for an entire state or
territory will provide a more accurate result
than for a single store.

● Avoid complex forecasts − It is always

advisable to stick to simple and short forecasts
for better accuracy and usability.

● Leveraging technology − As in any other

business activity integrating technology to
forecasting methods not only enable ease of
operations and reduce costs but also enhances
precision in business forecasts. AI enabled
software like predictive analytics can be used to
project complex data that can give a more
accurate and better forecast for operations
management.

Conclusion:

It can be observed that informed predictions can help

an organization to waive o anticipated risk.
Forecasting predicts a future outcome and hence
possesses a critical role in the operations management
of businesses today. It serves as a solid aid to the process
of planning. Lack of forecasting or ine cient
forecasting methods can result in failure of the business
plan. It is rather a systematic way to anticipate future
with the help of inferences made from existing and
previous data.

The various models and types of forecasts applied to

operations management and constructive ways of
implementing it are described here. Business
organizations use these di erent types of forecasting
based on its scope, accuracy and anticipated outcome.
It facilitates stress free infrastructure commitments by
assuring pro t in the long run. It also helps to forecast
future demands and thus enhances the scope for
innovation and develop new products.