Estimating Demand Uncertainty Using Judgmental Forecasts

Posted: 31 Oct 2008

See all articles by Vishal Gaur

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School

Ananth Raman

Harvard University - Technology & Operations Management Unit

Marshall Fisher

University of Pennsylvania - Operations & Information Management Department

Date Written: April 2005

Abstract

Measuring demand uncertainty is a key activity in supply chain planning. Of various methods ofestimating the standard deviation of demand, one that has been employed successfully in therecent literature uses dispersion among expertsâ forecasts. However, there has been limitedempirical validation of this methodology. In this paper we provide a general methodology forestimating the standard deviation of a random variable using dispersion among expertsâ forecasts.We test this methodology using three datasets, demand data at item level, sales data at firm levelfor retailers, and sales data at firm level for manufacturers. We show that the standard deviationof a random variable (demand and sales for our datasets) is positively correlated with dispersionamong expertsâ forecasts. Further we use longitudinal datasets with sales forecasts made 3-9months before earnings report date for retailers and manufacturers to show that the effects ofdispersion and scale on standard deviation of forecast error are consistent over time.

Suggested Citation

Gaur, Vishal and Kesavan, Saravanan and Raman, Ananth and Fisher, Marshall, Estimating Demand Uncertainty Using Judgmental Forecasts (April 2005). Operations Management Working Papers Series, Vol. , pp. -, 2005. Available at SSRN: https://ssrn.com/abstract=1290211

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Ananth Raman

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States
617-495-6937 (Phone)
617-496-4059 (Fax)

Marshall Fisher

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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