R R COLLEGE OF MANAGEMENT STUDIES

MANAGERIAL ECONOMIC
TOPIC

Forecasting Economic Performance

Submitted to Submitted by

Shankarnaryana Sir
Faculty member of RR college

Group No.:- 4
MBA 1st SEM.

CONTENTS
WHAT IS ECONOMIC FORECASTING?

DEVELOPMENT OF THE FORECASTING TECHNIQUE CURRENT SITUATION IN FORECASTING FORECASTING IN MANAGEMENT FORECAST ERROR QUALITATIVE ANALYSIS

WHAT IS ECONOMIC FORECASTING?

When companies hire new workers, they must predict the relative productivity of a wide variety of individuals with diverse skills, work histories, and personalities. How much inventory should be carried? What price should be charged during the coming holiday season? Which market is the most natural path for expansion? These and a host of everyday business decisions require that managers make informed forecasts of future economic events.

Definition of a forecasting situation

Data (time series, or historical data) Forecasting method (e.g. Moving average, Trend analysis) Forecast Error of forecast

Development of the forecasting technique

Non scientiffic forecasting: e.g. Astrology, Book of Changes. 19-20 century. Demographic forecasts Development of the quantitative methods: middle-to-second part of the 20th century. New developments: Neural network based methods

Current situation in forecasting

Forecasting is widely used in management now There exist a well defined set of quantitative forecasting methods that changes very little during last fiew decades There exists computer software that may be quite simply applied in forecasting Excel program allows to solve simple forecasting tasks

Common Forecast Techniques

Some forecasting techniques are basically quantitative; others are largely qualitative. The most commonly applied forecasting techniques can be divided into the following broad categories: Qualitative analyses Trend analysis and projection Exponential smoothing Econometric methods The best forecast methodology for a particular task depends on the nature of the forecasting problem.

Forecasting in management
Forecasting is used in various domains of management, such as: Personnel management Resource management Finance management Organizational management

Time-series methods of forecasting

Time series analysis relies on historical data and attempts to project historical patterns into the future Note: only time series methods will further be considered

Example of forecasting
Forecasting using linear trend. Demonstration
Week Number of library visitors

1 2 3 4 5 6

1063 2369 3159 3964 5001 (by inserting number of the week x=6 into the equation) 5. Evaluation (using RSQ) 0,99 Very good fitting Number of library visitors 8000

1. Calculating correlation: Signifficant correlation 2. Plotting a chart (XY scatter) 3. Adding a linear trend line Options: display equation 4. Calculating the forecast

0,995741

Visitors

6000 4000 2000 0 0 1

y = 947,1x + 269,9 R2 = 0,9915

2 Week

Forecasted number of visitors:

5953

Measuring forecast accuracy

What is the accuracy of a particular forecast? How to measure the suitability of a particular forecasting method for a given data set?

Definition of the forecast error

Error (e) of a forecast is measured as a difference between the actual (A) and forecasted values (F), that is, e=A-F, or, in a relative form: e=100% (A-F)/A. The error can be determined only when actual (future) data are available.

QUALITATIVE ANALYSIS
Qualitative analysis, an intuitive judgmental approach to forecasting, can be useful if it allows for the systematic collection and organization of data derived from unbiased, informed opinion. However, qualitative methods can produce biased results when specific individuals dominate the forecasting process through reputation, force of personality, or strategic position within the organization. 1. Expert Opinion 2. Survey Techniques

TREND ANALYSIS AND PROJECTION

Trend analysis is based on the premise that economic performance follows an established pattern and that historical data can be used to predict future business activity. Trend analysis techniques involve characterizing the historical pattern of an economic variable and then projecting its future path based on past experience.

Trends in Economic Data

Forecasting by trend projection is predicated on the assumption that historical relationships will continue into the future. All such methods use time-series data. Weekly, monthly, or annual series of data on sales and costs, personal income, population, labor force participation rates, and GDP are all examples of economic time series.

Linear Trend Analysis

Linear trend analysis assumes a constant period-by-period unit change in an important economic variable over time. Such a trend is illustrated in Figure 6.2, which displays the 17 years of actual sales data for Microsoft Corp. given in Table 6.1, along with a curve representing a linear relation between sales and time over the 19842001 period.

THANK YOU