Work study &

Forecasting

Principles of Management Assignment

Group 2
A batch
Work Study

Anandhu Raj
B160475EE
 Work Study

A system of assessing methods of

working so as to achieve the
maximum output & efficiency.
 Work Study

Work study is a generic term for

those techniques, particularly
method study and work
measurement, which are used in
all its context and which lead
systematically to the investigation
of all the factors, which effect the
efficiency and economy of the
situation being reviewed in order to
effect improvement
 Objectives
● to improve productivity of men, machines and materials.
● to determine the best method of performing each operation and to eliminate
wastage so that production increases with less fatigue
● To determine the standard time that a qualified worker should take to perform the
operation when working at a normal place
 In short...

● As to how should a job be done

● How much time a job should take for completion

 Role of Work Study

● To standardise the method of doing a work

● To minimise the unit cost of production

● To determine the standard time for doing a task

● To minimise the material movement, and operators

movement

● To eliminate unnecessary human movements

● To utilise facilities such as man, machine and materials most

effectively

● To a systematic investigation of all factors

 Objective of Work Study

● Increased efficiency

● Better product quality

● To choose the fastest method to do a job

● To improve the working process

● Less fatigue to operators and workers

● Effective labour control

● Effective utilisation of resources

● To decide equipment requirements

● To pay fair wages

 Objective of Work Study

● To aid in calculating exact delivery

● To formulate realistic labour budgeting

● To decide the required manpower to do a job

 Advantages of Work Study

● Work study ensures higher productivity

● Better working conditions with less fatigue

● Higher wages to workers

● Uniform production flow

● Job satisfaction and job security to workers

● Reduction in unit cost of production

● Quality products to consumers

● Fast delivery schedule

 Advantages of Work Study

● Harmonious employer-employee relation

● Better service to customers

METHOD STUDY

ANAND V
B160519EE
A BATCH
13
METHOD STUDY

Method study is the systematic recording

and critical examination of existing and
proposed ways of doing work, as a means of
developing and applying easier and more
effective methods and reducing cost.
It was originally designed for the analysis
and improvement of repetitive manual work
but it can be used for all types of activity at
all levels of an organisation.
OBJECTIVES OF METHOD STUDY

.
1 Improvement of processes and procedures
2.Improvement in the design of plant and equipment
3.Improvement of layout
4.Improvement in the use of men, materials and machines
5.Economy in human effort and reduction of unnecessary fatigue
6.Improvement in safety standards
7.Development of better working environment.
METHOD STUDY PROCEDURE

1. DEFINE
2. RECORD
3. EXAMINE
4. DEVELOP
5. DEFINE NEW METHOD
6. INSTALL
7. MAINTAIN
1.DEFINE
Before any method study investigation is begun, it is necessary to establish clear terms of
reference which define the aims, scale, scope and constraints of the investigation. This should
also include an identification of who "owns" the problem or situation and ways in which such
ownership is shared. This may lead to a debate on the aims of the project, on reporting
mechanisms and frequencies, and on the measures of success. This process is sometimes
introduced as a separate and distinct phase of method study, as the "Define" stage. It leads to
a plan for the investigation which identifies appropriate techniques, personnel, and timescale.

2.RECORD
The Record stage of method study involves gathering sufficient data (in terms of both quality
and quantity) to act as the basis of evaluation and examination. A wide range of techniques are
available for recording; the choice depends on the nature of the investigation; the work being
studied; and on the level of detail required. Many of the techniques are simple charts and
diagrams, but these may be supplemented by photographic and video recording, and by
computer based techniques.
3.EXAMINE
The recorded data are subjected to examination and analysis; formalised versions of this
process are critical examination and systems analysis. The aim is to identify, often through a
structured, questioning process, those points of the overall system of work that require
improvements or offer opportunity for beneficial change.The questioning technique is the
means by which the critical examination is conducted, each activity being subjected in turn to a
systematic and progressive series of questions.

4.DEVELOPING THE NEW IMPROVED METHOD

The analysis of existing work method can provide a starting point for a synthesis
of suggested improvements in job performance. The technique specially designed for
improving work method is called the process improvement formula.
The four steps of the formula are:
(i) Eliminate the unnecessary activities
(ii) Combine two or more activities
(iii) Sequence the various activities properly and
(iv) Simplify the activities.
Complete elimination of unwanted activities is the most important step in developing an improved
method. If elimination is not possible then possibility of combining the different activities should be
explored. The next strategy in development stage is to identify scope of changes in the sequence of
operations or activities.

The last and most important plus expensive step in process of method development is the
simplification of activities in order to allow the operator/worker to complete the job more quickly and
easily by reducing the number of operations, reducing or eliminating the delays and storage etc.
Finally after selecting the work method to be adopted, certain amount of experimentation will be
required to locate and eliminate snags if any specify the improved method. It is essential that the
selected method be described fully and in a systematic manner
5.DEFINING THE IMPROVED METHOD
• The report should show:
1.Relative costs in material, labour and overheads of the two methods, and savings
expected.
2.The cost of installing the new method, including the cost of new equipment and of
re-laying out shops or working areas
3.Executive actions required to implement the new method.

• It should also give details regarding :

1.The tools and equipment to be used
2.A description of the method
3.A diagram of the work place layout, jigs/fixtures etc
6.INSTALLING THE IMPROVED METHOD
•This involves training of those who are going to utilize the new method. Cooperation
from both supervisory staff and operators is essential to the successful installation of
any proposed and selected method. So the installation of the new method should then
be entrusted to some responsible person.
•The method implemented can be further improved by way of continuous observations
and discussions. The trial runs may be carried out during which minor modifications
may be made to facilitate working.
•Any method selected is ultimately to be utilized by the employees in an environment
created by the management. So employees and management should be subjected to
intensive analysis so that the proposed method is operated in the best possible
manner.
•Installation phase of the method study is complete as soon as the newly installed
method starts working smoothly and satisfactorily and provides encouraging result
(such as time saving and scrap reduction etc.).
7. Maintain the Improved Method
•Even after the workers have been trained and requisite changes in machines and
layout have been incorporated, there is no guarantee that the method will be used the
way it was designed.
•The proper functioning of the installed method is ensured by periodic checks and
verifications. The purpose of checks and reverse is to determine if the method being
adopted and practised is the same or it has some deviation from the selected one.
•Reasons for deviation if any should be explored and the required changes may be
incorporated in the procedure being practised so as to revert back to the authorized or
selected one.
•Views of persons concerned (like operators and supervisors) with the installed
method can be of much help in exploring further improvements in the system.
Therefore the method should be reviewed at intervals to provide allowances for any
changes.
Advantages of method study

● • Less fatigue to the operator

Work simplification
● Improved working method • Optimum utilisation of all resources
● Better product quality • Higher safety to work men
● Improved work place layout • Shorter production cycle time
● Improved equipment design • Higher job satisfaction
● Better working conditions • Reduced material consumption and
● Better material handling wastages
● Improved work flow • Reduced manufacturing cost and higher
productivity
Time Study
Amal Jood (B160035EE)
 Time Study
Time study is concerned with the
determination of the amount of time
required to perform a unit of work. It
consists of the process of observing and
recording the time required to perform each
element of an operation so as to determine
the reasonable time in which the work
should be completed.
 Definition
International Labour Organisation(ILO) gives the following definition for
time study.

Time study is a work measurement technique for recording the times

and rates of working for the elements of a specified job carried out
under specified conditions and for analyzing the data so as to obtain
the time necessary for carrying out the job at a defined level of
performance.
 Brief History

● The famous American Engineer,

Frederick Winslow Taylor, the
father of scientific management
movement was the man behind the
development of time study.
● In addition to Taylor, Frank Gilbreth
has made lasting contributions in
the field of time study.
● Taylor’s time study was further
refined in 1911 by American
Industrial Consultant, Charles E.
Bedaux.
Basic Terminology
● Timing: The observer records the actual time taken to do the
element or operation. This usually is in centiminutes (0.01 min.)
and is recorded, using a stop-watch or computerized study
board.
● Rating : The time taken for one person to do the work may not be
the same as that for others and may or may not be 'reasonable'
anyway. The purpose of rating is to adjust the actual time to a
standardized basic time that is appropriate and at a defined level
of performance. Rating is on a scale with 100 as its standard
rating.
● Elements : A complete job usually will be too long and variable to
time and rate in one go, so it would be analysed into several
smaller parts (elements) which, separately, will each be timed
and rated.
 Basic Terminology (CONT.)

● Basic time: This is the standardised time for carrying out an element of work at
standard rating.

For example An observer times an element as 30 centiminutes (cm) and because

it is performed more slowly than the standard 100, he rates it as 95. Thus the
basic time is 95% of 30 or 28.5 basic cm.

● Allowances : Extra time is allowed for various conditions like recovery from the
effort of carrying out specified work under specified conditions ,attention to
personal needs, adverse environmental conditions etc.
● Standard time: Basic time + allowances
● Frequency: The basic time is the time for a complete cycle to be performed but
as not all elements are repeated in every cycle their times per average cycle must
be pro rata. For example, of an element that only occurs once every eight cycles.
So its basic time is one eighth of the element time, per cycle.
 Uses of Time Study
By determining the quantum of human work in a specified
task and thereby establishing the standard time, within
which an average worker working at a normal pace should
complete the task using a specified method, time study
aims :

● To determine standard time for various operations and

thereby helping fix wages and incentives.
● To estimate the cost of a product accurately.
● Production control.
● To help in predicting when the work will be completed
(and hence customers can be promised to take
delivery on a fixed date).
Limitations Of Time Study
● Time study is most effective in plants having large-scale
output of standardized product, on jobs repetitively
performed. It is not suitable for non-repetitive jobs and for
non standardized or indirect labour jobs. It is also less
suitable on jobs paced by automatic machines than on jobs
where operators control the workplace.
● Mechanical, physiological, psychological and sociological
sources of variation may affect the output and quality
performance of workers adversely. This could upset the
successful application of time study based output standards.
● Unions quite frequently oppose the time study because the
accuracy of time study is overly dependent upon the skill and
judgement of the time-study man.
ADVANTAGES AND LIMITATIONS
AJITHA PADAKANDLA
Advantages and limitations of
B160647EE
1. Work Study

2.Method study

3.Time study
 WORK STUDY
ADVANTAGES:
• Helps to establish the standard time of an operation .
• Reduction in unit cost of production, Quality products to consumers,
fast delivery schedule.
• It helps us to achieve smooth production flow with minimum
interruptions.
• It helps to reduce the cost of product by eliminating waste and
unnecessary operations.
• Better work management relations.
• Meets the delivery commitment.
• Reduction in rejections and scrap and higher utilisation of resources of
the organisation.
• Helps to achieve the better working conditions.
• Improves upon the existing methods and process and helps in
standardisation and implication.
• Harmonious employer-employee relation, and Better service to
customers.
 LIMITATIONS
● Its not economical for studying a single operator or machine for studying operators or machines located over wide
areas.
● It cannot provide much detailed information.
● It is little value in helping to improving the methods.
 METHOD STUDY
ADVANTAGES:

● Work simplification is possible which improves the product quality.

● It provides Better working conditions, equipment design and material
handling for a improved work place layout.
● Optimum utilization of all resources reduced material consumption
and wastages
 LIMITATIONS

● Many times we caught in a situation where we are unable to get the desired
results.
● The outcome in this process take a longer time than required.
● The human behavior is most uncertain and it is not possible to predict how man
will react into a particular policy decision.
● It is not possible to formulate definite principle.
● Uniform principles, rules and policies cannot be laid down for all type of
organization.
 TIME STUDY
ADAVANTAGES:
• Output standards are easily convertible into standard labour cost per unit of output.
• Output standards serve as yardsticks guiding managerial comparisons of actual and standard
hourly production rates. An operations manager prepares lists showing actual-to-standard output
ratios for each operator and each operator’s group.
• These reports enable the supervisor to identify substandard workers, so that they may be brought
up to standard production efficiency.
● Output standards facilitate scheduling and controlling the flow of production,
through the determination of numbers of machines and operators required to
maintain production
● Output standards also facilitate evaluation of machine capacities
● Time study may be taken for checking operators complaints about tight rates.
● Observation during a time study may enable the engineer to suggest further
improvement in work methods and work-place output.
● During a time study, the engineer may note inconsistencies in motion sequences
used by individual operators, leading to retraining recommendations.
 LIMITATIONS

• Time study is not suitable for non-repetitive jobs and for non standardized
or indirect labour jobs.
• It is less suitable on jobs paced by automatic machines than on jobs where
operators control the work place.
• If an output standard is unattainable, it subverts effective performance by
lowering operator morale, due to the offered but unfulfilled incentive.
• Coupled to incentive wages, output standards may contribute to under
emphasis on the quality of production.
• Production cost may be increased due to loose output standards.
● Unions quite frequently oppose the time study because the accuracy of time
study is overly dependent upon the skill and judgement of the time-study man.
● Mechanical, physiological, psychological and sociological sources of variation
may affect the output and quality performance of workers adversely. This could
definitely upset the successful application of time study based output standards.
Forecasting Definition and
Features

AMAN HARI KUMAR

B160149EE
A BATCH
11
 Forecasting

Definition:
● Forecasting is the process of
making predictions of the
future based on past and
present data and most
commonly by analysis of
trends.
● A commonplace example
might be estimation of some
variable of interest at some
specified future date.
 ● Prediction is a similar, but
more general term. Both might
refer to formal statistical
methods employing
time series, cross-sectional or
longitudinal data.
● Usage can differ between
areas of application: for
example, in hydrology the
terms "forecast" and
"forecasting" are sometimes
reserved for estimates of

values at certain specific future times, while the term "prediction" is used for more
general estimates, such as the number of times floods will occur over a long period
Risk and uncertainty are central to forecasting and prediction;
● It is generally considered good practice to indicate the degree of uncertainty
attaching to forecasts.

● In any case, the data must be up to date in order for the forecast to be as
accurate as possible.

● In some cases the data used to predict the variable of interest is itself
forecasted.

In management terms:
● In preparing plans for the future, the management authority has to make some
predictions about what is likely to happen in the future.It shows that the
managers know something of future happenings even before things actually
happen.Forecasting provides them this knowledge.
● The future cannot be probed unless one
knows how the events have occurred in
the past and how they are occurring
presently.
● The past and present analysis of events
provides the base helpful for collecting
information about their future occurrence.
● Thus, forecasting may be defined as the
process of assessing the future normally
using calculations and projections that take
account of the past performance, current
trends, and anticipated changes in the
foreseeable period ahead.
● Whenever the managers plan business operations and organisational set-up for
the years ahead, they have to take into account the past, the present and the
prevailing economic, political and social conditions.
● Forecasting provides a logical basis for determining in advance the nature of
future business operations and the basis for managerial decisions about the
material, personnel and other requirements.
● However, it must be recognised that the process of forecasting involves an
element of guesswork and the managers cannot stay satisfied and relaxed after
having prepared a forecast.
● The forecast will have to be constantly monitored and revised—particularly when
it relates to a long- term period.
● The managers should try to reduce the element of guesswork in preparing
forecasts by collecting the relevant data using the scientific techniques of
analysis and inference.
Features of forecasting:

● Forecasting relates to future events.

● Forecasting is needed for planning process because it devises the future
course of action.
● It defines the probability of happening of future events. Therefore, the
happening of future events can be precise only to a certain extent.
● Forecasting is made by analysing the past and present factors which are
relevant for the functioning of an organisation.
● The analysis of various factors may require the use of statistical and
mathematical tools and techniques.
Role of Forecasting:

It helps the managers in the following ways:

● Basis of Planning:
● Forecasting is the key to planning.
● Planning decides the future course of action which is expected to take place in
certain circumstances and conditions. Unless the managers know these
conditions, they cannot go for effective planning.
● Forecasting provides the knowledge of planning premises within which the
managers can analyse their strengths and weaknesses and can take appropriate
actions in advance before actually they are put out of market. Forecasting
provides the knowledge about the nature of future conditions.
● Promotion of Organization:
● The objectives of an organisation
are achieved through the
performance of certain activities.
What activities should be performed
depends on the expected outcome
of these activities. Since expected
outcome depends on future events
and the way of performing various
activities, forecasting of future
events is of direct relevance in
achieving an objective.
● Facilitating Co-ordination and Control:
● Forecasting indirectly provides the way for effective co-ordination and control.
Forecasting requires information about various factors. Information is collected
from various internal and external sources.
● It provides interactive opportunities for better unity and co-ordination in the
planning process.
● Similarly, forecasting can provide relevant information for exercising control.
● The managers can know their weaknesses in the forecasting process and they
can take suitable action to overcome these.
● Success in Organisation:
● All business enterprises are characterised by
risk and have to work within the ups and
downs of the industry. The risk depends on the
future happenings and forecasting provides
help to overcome the problem of uncertainties.
● Though forecasting cannot check the future
happenings, it provides clues about those and
indicates when the alternative actions should
be taken. Managers can save their business
and face the unfortunate happenings if they
know in advance what is going to happen.
 Categories of forecasting
methods
● Qualitative vs. quantitative methods
Qualitative forecasting techniques are
subjective, based on the opinion and
judgment of consumers and experts; they
are appropriate when past data are not
available. They are usually applied to
intermediate- or long-range decisions.
Examples of qualitative forecasting
methods are informed opinion and
judgment, the Delphi method,
market research, and historical life-cycle
analogy.
 ● Average approach
In this approach, the predictions of all future values are equal to the mean
of the past data. This approach can be used with any sort of data where
past data is available
● Naïve approach
Naïve forecasts are the most cost-effective forecasting model, and provide
a benchmark against which more sophisticated models can be compared.
● Seasonal naïve approach
The seasonal naïve method accounts for seasonality by setting each
prediction to be equal to the last observed value of the same season.
etc.
FORECASTING PROCESS
AND IMPORTANCE

AHAMMED ASHIR KP
B160420EE
EEE - A
Features of forecasting

1 . It is concerned with future events

2. It is necessary for planning process
3. The impact of future events has to be considered in the planning
process
4. It is guessing of future events
5. It is considered all the factors which affect organizational functions
6. Personal observation also helps forecasting
Process of forecasting

● Thorough preparation of foundation

The very purpose of thorough preparation is that the

forecasting is based on the foundation

● Estimation of future

The brightness of future period can be estimated in

consultation with the key personal & it may be communicated to all
the employees of the business unit
● Collection of results

Relevant records are prepared & maintained to collect the result

● Comparison of results

The actual results are compared with estimated results to know

deviations. The will help the management to estimate the future

● Refining the forecast

The forecast can be refined in the light of deviations which seem to

be more realistic
 Importance of forecasting

● Pivot role in an organization

Many organizations have failed because of lack of forecasting or

faulty forecasting. The reason is that planning is based on accurate
forecasting

● Development of business

The performance of specified objectives depends upon the proper

forecasting. So the development of a business or an organization is
fully based on the forecasting
● Co-ordination

Forecasting helps to collect the information about internal and external

factors. Thus collected information provides a basis for co-ordination

● Effective control

Management executive can ascertain the strength and weaknesses of

dub-ordinates or employees through forecasting

● Key to success

All business organization are facing risks. Forecasting providing clues and
reduce risks and uncertainties. The management executives can save the
business and get success by taking appropriate action
● Implementation of project

many entrepreneurs implement a project on the basis of their experience .

forecasting helps an entrepreneur to gain experience and ensures him success

● Primacy to planning

The information required for planning is supplied by forecasting. So,

forecasting is the primacy to the planning
AREAS AND TYPES OF
FORECAST
ANS MARIA
B160224EE
 AREAS OF FORECASTING
i. Economic development:
■ The economic conditions of the country as well as those of the whole world have significant
effect on the operations of an organisation.
■ This includes predictions relating to GNP, currency strength, industrial expansion, job
market, and balance of payments.

ii. Technological forecasts:

■ These forecasts predict the new technological developments that may change the
operations of an organization.
■ An organisation keeps up to date with new technological developments and readily adopts
new methods to improve performance.

62
iii. Competition forecasts:
■ It is necessary to predict as to what strategies our competitors would be employing.
■ The competitor may be working to employ a different marketing strategy for the same
product or bringing out a substitute for the product which could be cheaper and easily
acceptable.

iv. Social forecasts:

■ These forecasts involve predicting changes in the consumer tastes, demands and
attitudes.

v. Other forecasts:
■ Other necessary forecasts are predictions about new laws, political events, labour supplies
etc.
■ These are all critical areas with impacts on the planning process.
63
 TYPES OF FORECASTING METHODS
Various techniques of forecasting are used in the field of business. An accurate
forecasting may reduce the degree of uncertainty. In practice, more than one
technique can be combined for making the forecasting effective. 

1. Qualitative and judgemental method

2. Method based upon past result
3. Method based upon causal relationship

64
○ i) QUALITATIVE AND JUDGEMENTAL METHOD

○ It involves the use of subjective judgements and is appropriate in situations where essential
data is not available. It is used in economic and technological forecasts. For example when a
new product is launched there is no past–experience for estimating near term effects.

○ a) Jury of executive opinion:

· The opinion of experts in sales, finance, purchase etc. is sought under this method and the
meritorious one is accepted by combining and averaging the views of executives.
· The manager may bring together top executives from major functional areas of the organisation
and supplies the group with background information on the item to be forecast, then combines and
averages the executives' views.

· The idea is that discussion by the group will produce better forecast than any one individual.
b. b) Sales force composite:
· The top management asks each area sales manager to develop a sales forecast for his area. The
area sales manager in his turn asks his salesmen to develop forecasts for their areas. They in turn
ask wholesalers and retailers in their areas to do the same.

· Thus, different opinions are gathered and a composite forecast is made for specific products or
total sales.

· Since this technique derives a forecast by compiling inputs from those at the end of the hierarchy
who deal with what is being forecast, it is also known as grass roots technique.

c. c) Survey technique:
· Polls and surveys are conducted to find out what the future will be.
· Quantitative and qualitative information is collected by interrogating selected customers about
their future needs.
· Also known as marketing research method.
b. d) Delphi method:

· It is developed by Rand Corporation to forecast the military events.

· It is used when past data are not available.
· Opinions are taken from experts through questionnaire and then summarized and again given
to experts for expected future evaluations.

c. e) Scenario construction:

· A scenario containing a logical and hypothetical description of events is developed.

67
❏ ii) METHOD BASED UPON PAST RESULT
In situations where the past has been more or less consistent and the future is expected to
conform to the past, an efficient way to forecast is by extrapolating from the past
experiences .

a) Time series analysis:

· Forecasts are based on the assumptions that the business conditions affecting its steady growth
or decline are reasonably expected to remain unchanged in the future.
· We may draw a graph of past sales and project the same into future, then adjust it for any
changes that are expected to occur in future.
b) Focus forecasting :

· Has several logical and easy to understand forecasting rules to project past data into future.
· Each of these rules is used in a computer simulation programme to actually project demand
and then measure how well that rule performed when compared to what actually happened.
· These forecasting rules are not hard and fast. If a new rule seems to work well, it is added. If
one is not working well, it is deleted.
· Used primarily in finished goods inventory management.

c) Historical analogy method:

· A general forecast can be made about the nature of events in the economic system of the
country, based on some analogous conditions elsewhere in the past.
· The economic situation of a country can be predicted by making comparison with the advanced
countries at a particular stage through which the country is presently passing.
69
3. iii) METHOD BASED UPON CAUSAL RELATIONSHIP
In some situations, it may be possible to understand the relationship between the item
being forecast and the system underlying or surrounding the item.
For example the sale of cars is dependent upon personal income and consumer
confidence or increase in sales of umbrellas and raincoats is dependent on an extended
period of rain.

a. a) Regression analysis:
· It is use to find the effect of changes of relative movements of two or more inter-
related variables.
· It is used to estimate the changes in one variable as a result of specified changes in
other variable or variables.

70
 b) Econometric models:

· Various cause variables are responsible for effect on one variable. The best example is Gross
National Product.

c) Business barometers:

· Index numbers are used to measure the state of an economy between two or more periods.
These index numbers are the device to study the trends, seasonal fluctuations, cyclical movements,
and irregular fluctuations.
· These index numbers, when used in combination with one another, provide indications as to the
direction in which the economy is proceeding

71
SELECTION OF TYPE OF FORECASTING METHOD TO BE
USED

● No single technique of forecasting can satisfy the requirements of all types of

managers and organizations. A good strategy is to use two or three techniques and look
at them from the common-sense view.

● A manager should bear in mind that a perfect forecast is impossible. Therefore, rather
than searching for a perfect forecast, it is far more important to establish the practice
of continual review of forecasts.
The technique a manager will select depends on :

· His own technical ability

· The functional area involved
· The amount of information available
· The level of accuracy required
· The time-period to be forecast
· The time available to complete the analysis
· The value of the forecast to the organisation.
FORECAST ERRORS

AMINA I
B160864EE
 INTRODUCTION

● Forecasting is the process of making statements about events

whose actual outcomes (typically) have not yet been
observed.
● The forecast error (also known as residual) is the difference
between the actual value and the forecast value for the
corresponding period.
● Et = Yt – Ft
where E is the forecast error at period t, Y is the actual value
at period t, and F is the forecast for period t.
 FORECAST ERROR

● Forecast error can be a calendar forecast error or a cross-

sectional forecast error, when we want to summarize the
forecast error over a group of units
● If we observe the average forecast error for a time-series of
forecasts for the same product or phenomenon, then we call
this a calendar forecast error or time-series forecast error.
● If we observe this for multiple products for the same period,
then this is a cross-sectional forecast error.
 CALCULATING FORECAST ERRORS

● A good forecasting method will yield residuals that are

uncorrelated. If there are correlations between residual values, then
there is information left in the residuals which should be used in
computing forecasts.
● A good forecasting method will also have zero mean. If the residuals
have a mean other than zero, then the forecasts are biased and can be
improved by adjusting the forecasting technique by an additive
constant that equals the mean of the unadjusted residuals.
 MEASURES OF AGGREGATE ERROR

● Mean Absolute Deviation(MAD)/Mean Absolute

Error(MAE):
N = no. of time periods

● Mean Squared Error (MSE)/Mean Squared Prediction Error

(MSPE):
● Root Mean Squared Error(RMSE):

● Average of Errors:
● Mean Absolute Percentage Error(MAPE)

● Tracking Signal(TS):
T S = Sum of Forecasting Errors ÷ MAD
 CONCLUSION

● Forecasting helps managers and businesses develop meaningful plans

and reduce uncertainty of events in the future.
● Managers want to match supply with demand; therefore, it is essential
for them to forecast how much space they need for supply to each
demand.
● Forecasting is a statement pertaining to the future value of a variable of
interest. Its crucial for good forecasting to be reliable, cost effective,
simple and concise. Its very important for a forecast to be correct and
that their be as few errors as possible.