How Does Forecasting Differ From Planning

Chapter 9 Prework
9-1.1: How does forecasting differ from planning?
Forecasting is a management tool for planning. Planning is usually done with management control unlike forecasting. Rather than predicting/ forecasting – planning is where management sets objectives, goals, and plans of action. Forecasting is attempting to quantify demand in a future time period. Typically forecasting uses historical data during the same previous time period (year, month, day, etc.). For example, noticing that the previous year fourth quarter was busy may imply that this year’s fourth quarter may be the same, thus, planning is initiated.

9-1.2: What is the purpose of forecasting?
The purpose of forecasting involves three management functions – analysis, planning, and control. It involves the short, medium, and long term forecasting. Forecasting is the pre-work for planning and shows how an airline should prepare to operate their business in the coming weeks, month, years, etc.

9-1.3: Give an example of a short-term and long-term forecast.
There are actually three types of forecasting – short, medium, and long term (short being under one year, medium being one to five years and long is over five years). Short-term forecasting has a purpose to determine the total number of passengers between a pair of cities, how much staff is needed, or what is the current competitive advantage situation in the present market. Examples of medium-term forecasting would be route-planning and long=term forecasting would be examples like fleet planning and long-term financial commitments.

9-2.1: Describe how forecasts can be used by firms for analysis, planning, and control purposes.
Using operating costs to guide an airline company on what aircraft to purchase for their fleet, using long-term passenger data to determine is an airline should create a new shuttle service route between two cities, and using potential sales in market data to decide if developing a new light aircraft is cost effective are all examples of the analysis function in forecasting. Firms can use the planning function when forecasting when they are trying to determine how much staff is required for the upcoming year in relation to how many departures there are. Another example for the planning function is planning future expansion. A firm’s plans for expansion and could use the population and business growth data at specific cities. Lastly, firms can use the control purposes function in forecasting by using market research to develop a new forecast of company sales potential in a specific market.

9-3.1 What is meant by a causal, or model, forecast?
Causal/model forecasting is a statistical relationship between dependent variables (forecast) and independent variables (explanatory). It is a model constructed by finding and using variables that uses statistics to explain the changes in the variable forecast. Some examples include econometric models, regression analysis, and computer models.

9-3.2 Define dependent and independent variables and correlation.
A dependent variable is the outcome factor; It can change

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