The Impact of Forecast Errors on Staffing Decisions for Service Centers

Working Paper QM 93-03

Posted: 2 Oct 1999

See all articles by David J. Braden

David J. Braden

Washington University in St. Louis - John M. Olin Business School

Gregory Dobson

University of Rochester - Simon Business School

Harry Groenevelt

Simon Graduate School of Business, University of Rochester

Abstract

Providing the right staffing levels is of paramount importance in most service centers. Excess capacity is costly, yet a lack of sufficient capacity leads to unacceptably low service levels which may be even costlier. When determining staffing levels for a service center it is, therefore, essential to develop forecasting for the expected load on the system. Although in practice these forecasts are not perfect, they are often taken to be so. In this paper we explore the impact of ignoring forecast uncertainty, and develop an approach that explicitly incorporates the effects of forecast errors. We model the service center as a queuing system in which the arrival rate is a random variable with known distribution. The manager sets the number of servers to minimize a cost function that includes a variety of terms related to the performance of the system. We show that both the optimal number of servers and the optimal value of the cost function are quite sensitive to the variance of the arrival rate, so the performance of the service center could be significantly suboptimal if a manager ignores forecast uncertainty. In addition we show that the decision and the optimal value of the cost function are quite insensitive to uncertainty in other parameters such as the waiting and reneging costs. Although the optimal value of the cost function is also quite sensitive to the shape of the prior distribution for the arrival rate, a manager can make a near-optimal staffing decision knowing only the first two moments of the distribution of forecast errors.

JEL Classification: L22

Suggested Citation

Braden, David J. and Dobson, Gregory and Groenevelt, Harry, The Impact of Forecast Errors on Staffing Decisions for Service Centers. Working Paper QM 93-03, Available at SSRN: https://ssrn.com/abstract=6254

David J. Braden

Washington University in St. Louis - John M. Olin Business School

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Gregory Dobson

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-310
Rochester, NY 14627
United States
585-275-2670 (Phone)
585-442-6652 (Fax)

Harry Groenevelt (Contact Author)

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-339
Rochester, NY 14627
United States
585-275-2825 (Phone)
585-275-9331 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
917
PlumX Metrics