Skip to content
Sem 5 Prep
← OperationsForecasting: what and why

Formulas for this chapter

Naive forecast

F(t) = A(t-1)

As a zero-cost benchmark, and when the series has no trend or seasonality worth modelling. Every other method must beat it to justify itself.

F(t)
Forecast for period t
A(t-1)
Actual demand in the most recent period

Forecast error

Error = Actual - Forecast

Step 6 of the process, every period. Keep the sign in the table; drop it only when computing absolute measures.

Actual
Demand that actually occurred in the period
Forecast
What was predicted for that period, before it happened
Step 1 of 23
The ideaTheory

Guessing, but with rules

A shop owner orders bread for tomorrow. Too much and it goes stale. Too little and customers leave.

She is forecasting. Every decision about tomorrow's capacity, staff or stock rests on a number that nobody actually knows.

Forecasting does not make the number true. It makes the guess systematic, and it tells you how wrong the guess is likely to be.

← BackContinue →