1. OPERATION MANAGEMENT
FORECASTING.

2. NEED AND IMPORTANCE OF FORECASTING.
• Every one interested in future, for curiosity, or for
planning.
• Plan for contegencies likely to happen in future if
known before hand.
• Contigencies may occur or may not occur, but if
they occur the magnitude can be enormous, the
total saving may not be sufficient.
• Same problem faced by operation manager in the
field of operation management.
• Today if the demand is more than production
total production of all producers taken together.
• Can one setup a plant to increase the production
to meet the demand??

3. What is forecasting.
• Every manager would LIKE to know exact nature of
future events to accordingly PLAN when sufficient time
is there to implement
• The effectiveness of his plan depends on level of
accuracy with which future events are known to him.
• Try to forecast future to the best of his
ability, judgement, and experience.
• Process of estimating a future event by casting forward
past data. The past data are systematcially combined in
a predetermined way to obtained estimate of the
future.
• Prediction is the process of estimating a future based
on subjective considerations other than just past
data, need not be predetermined way.

4. • Estimate of future values of certain specified
indicators relating to decisional/ planning
situation.
• Some situation single indicator is sufficient.
• The no.of indicators and the degree of
forecast depends on the intended use of
forecast.
• How much far in future ?? Should be
sufficiently in advance so as to enough time
for decision plan & put that plan operational.
• Forecast >or= time taken for preparation of
plan + time taken to implement the plan.

5. Need for Forecasting
Purpose.
• Any action plan is devised in the present, to take care of future
contigency in future, occuring out of set of conditions or
situation.
• There is some purpose of achieving something for devising the
plan.
• Example to set up additional plant is to increase the capacity.
The magnitute of production and size of the plant depends on
future demand supply gap.
• To achieve this target, a plan is prepare and put into action.
2. Time
• To prepare plan, organise resources for its implementation and
complete, need time as a resource. There if forecast is done in
advance, enough time will be left for planning and implementing
in time.
• In same example, set up additional plant takes t1
time, technology negotiation t2, land purchase t3,permissions
and clearances t4, provisions to be made for finance
t5, errection, construction, testing etc.,
1.

6. Steps in forecasting process.
1. Identify the general need.
• There may be unfulfilled demand. Op.mgr. may feel, why
not expand production? Wise ?When to expand? How
much to expand?
2. Select the period/ time horizon of forecast.
• if erection is three years, forecast should be for min. 5
years.
3. Select indicators relevant to the need.
• Like industry sales, competitors present, project
capacity, population projection ( if product targets
population.
4. Select forecast model.- what type of data is required.
5. Data collection. Should include past data also.
6. Prepare forecast using the data and calculate value of
forecast.
7. Evaluate the logical feasibility, don’t blindly follow the
result of model, which has upper, lower limit, probability.

7. Forecast in POM
• Importance of forcast lies in its ability to help
manager to take better actions regarding future.
Advantages with forecase as follows.
1. Manager is better informed to set up objectives
more clearly.
2. Thinking, generation, choice of alternatives
more focussed.
3. Sufficient time is available, possible to organsie
and implement his action in better way.
FORECAST ERROR
• Value forecast – value actually happening.
• Sophosticated models reduce error. Again trade
off between choice of model and cost.

8. Application of forecasting in POM
APPLICATION
INDICATORS
TIME SPAN
NEW PLANT FOR
EXPANSION
Long term demand, production,
capacity of all producers etc.,
5 or more years
Seasonal production
planning
Demand cycles, preferable from one
peak to another.
6 months to 2
years.
Capacity planning
Long term money market, interest rate One or more year.
trends.
Intermediate
operations planning
Intermediate demand shift in
preferences.
Upto about 2
years.
Short run production
adjustement
Short term demand, short term
material/ input protections.
About 6 weeks.
Scheduling production
Order position
Usuallly 1 week.
Product development.
Long term sales trend decline stage,
technological development in related
fields.
2 years and more