Forecasting is an essential element of capital budgeting requires the commitment of significant funds today in the hope of long term benefits. The role of forecasting is the estimation of these benefits. | Ch 3: Forecasting: Techniques and Routes Introduction Forecasting is the establishment of future expectations by the analysis of past data, or the formation of opinions. Forecasting is an essential element of capital budgeting. Capital budgeting requires the commitment of significant funds today in the hope of long term benefits. The role of forecasting is the estimation of these benefits. Forecasting Techniques and Routes Techniques Routes Top-down route Bottom-up route Quantitative Qualitative Simple regressions Multiple regressions Time trends Moving averages Delphi method Nominal group technique Jury of executive opinion Scenario projection Quantitative Forecasting Quantitative: Regression with related variable Data set of ‘Sales’ as related to both time and the number of households. Quantitative Forecasting Quantitative: Sales plotted related to households. Quantitative Forecasting Quantitative: Sales regressed on households. Edited output from the Excel . | Ch 3: Forecasting: Techniques and Routes Introduction Forecasting is the establishment of future expectations by the analysis of past data, or the formation of opinions. Forecasting is an essential element of capital budgeting. Capital budgeting requires the commitment of significant funds today in the hope of long term benefits. The role of forecasting is the estimation of these benefits. Forecasting Techniques and Routes Techniques Routes Top-down route Bottom-up route Quantitative Qualitative Simple regressions Multiple regressions Time trends Moving averages Delphi method Nominal group technique Jury of executive opinion Scenario projection Quantitative Forecasting Quantitative: Regression with related variable Data set of ‘Sales’ as related to both time and the number of households. Quantitative Forecasting Quantitative: Sales plotted related to households. Quantitative Forecasting Quantitative: Sales regressed on households. Edited output from the Excel regression. Quantitative Forecasting Quantitative: Sales regressed on households. Predicting with the regression output. Regression equation is: Sales(for year) = + ( x households). Assuming that a separate data set forecasts the number of households at 1795 for the year 2006, then: Sales(year 2006) = + ( x 1795) = 5,604 units. Quantitative Forecasting Quantitative: Multiple Regression Sales as a function of both time and the number of households. Quantitative Forecasting: Multiple Regression Line Information From the Excel spreadsheet. Quantitative Forecasting: Using Multiple Regression Multiple regression equation is: Sales in year = +( x Year) + ( x Households) Forecast of sales for the year 2005 is: Sales in year 2005 = + ( x 2005) + ( x 1586) = 5200 Units (Note: the sales forecast relies upon a separate forecast of the number of households, given as 1 586, for 2005.) Quantitative Forecasting .
