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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 3 of 23
The real wordsTheory

Two aspects, not one

A forecast is not one number. It is two.

Expected level of demandWhich may be a function of some structural variation, such as trend or seasonal variation.
AccuracyRelated to the potential size of forecast error.

"We expect 500 units" is half an answer. "We expect 500, give or take 40" is a forecast a planner can act on.

Everything in the next two chapters divides along that line: methods that produce the level, and measures that describe the error.

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