Operational research, Corporate Finance

Assignment Help:

Fisher and Raman (1996), Fisher et al. (2001) propose to let a number of experts within a company estimate the demand for a product. The demand is calculated as the average of the experts' estimates. The method is straightforward and very applicable for the speci?c company that we consider. Indeed, both Fisher and Raman (1996), Fisher et al. (2001) also proposed the method for a retailer in the apparel industry.

Mantrala and Rao (2001) also develop two forecasting methods based on experts' estimates for an apparel retailer (of the demand for mens walking shorts for the spring season). Their methods are more detailed than those of Fisher and Raman (1996), Fisher et al. (2001), since they divide the season into a number of periods and also consider different price levels. The ?rst method starts by asking each expert separately for the minimum, maximum, and most likely (modus) demand for each combination of period and price.

Subsequently, using the Delphi group method, the experts have to reach consensus on the minimum, maximum, and modus for each combination of period and price. Finally, for each combination of period and price, the forecast (for the mean) is calculated as the average of the minimum, the maximum, and the modus. The second method asks different input from the experts: an estimate of total (over all periods) demand at a single price, as well as a 95% con?dence interval; the expected percentage of total demand that will occur in each period; and an estimate of the price elasticity.

Based on these inputs, total demand is estimated using a rather complicated model including a log-normal disturbance term. The authors do not report any results on the quality of the resulting forecasts of the two methods.

Based on a survey among 240 ?rms, Sanders and Manrodt (2003) report judgmental forecasting methods to perform less well than quantitative methods. They offer two explanations for the poor performance of judgmental forecasting. First, there are a number of inherent biases, including optimism, wishful thinking, lack of consistency, politicalmanipulation, and overreacting to randomness. Second, people have a limited ability to consider and process large amounts of information.

On the other hand, judgmental methods are often preferred by practitioners, since they can incorporate special insights, trends, and macro-economic factors, which are hard, if not impossible, to quantify in practice and since practitioners are more acquainted with them. Moreover, a lack of data often rules out the use of complex forecasting methods. This is certainly true for the mail order retailer that we consider.


Related Discussions:- Operational research

Desccribe the determination of foreign exchange rate, Question 1: (a) ...

Question 1: (a) Show that the pricing of Eurocurrency deposits and loans leads to lower profit margin by Eurobanks compared to onshore banks. (b) What are the factors that

Stock market, Let there be a village with two farmers, Tommy and Freddy. To...

Let there be a village with two farmers, Tommy and Freddy. Tommy grows rice and Freddy grows cactus. When the weather is dry then Tommy's investment in cactus has an above average

? The effect of incorrect recognition of revenue on, A? The effect of incor...

A? The effect of incorrect recognition of revenue on financial reportssk question #Minimum 100 words accepted#

Find net payment of the company, a)    Black Corp. currently has $65 millio...

a)    Black Corp. currently has $65 million worth of floating rate debts carried at an average rate of LIBOR + 2.6% that it would like to hedge against rising interest rates withou

Compute the current market price of the stock, Question : Alpha Ltd. - ...

Question : Alpha Ltd. - an 100% equity company - is following a payout ratio of 40% during the last several years. The financial managers of the company are now considering wh

Commercial insurance example, The East Coast Conglomerate Co (ECCC) a small...

The East Coast Conglomerate Co (ECCC) a small manufacturing company is doing a risk management assessment and a total review of their insurance policies. They have asked you,  know

Capital rationing, reasons for capital rationing in public sector

reasons for capital rationing in public sector

Types of fixed income securities, Question: i) Compare and contr...

Question: i) Compare and contrast the various types of fixed income securities. ii) ‘A new issue of callable bonds will generally carry a higher interest rate

Derive the fund separation theorem, Question 1: (a) What are the compe...

Question 1: (a) What are the competing theories which have been put forward to explain the term structure of interest rates? Which theories do the evidence tend to support?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd