(1) Optimization: Finding the best solution
Our optimizer helps us determine how much we should order.
(2) Statistical Forecasting Algorithm: A computer program that uses statistics to predict the future.
The statistical forecasting algorithm is helpful, but we also need to include our instinct about things it doesn’t include in the calculations.
(3) Forecast: A prediction about the future.
The economic forecast has been getting much better recently. I think the economy will be better next year.
1. How does he feel about statistical forecasting?
a. It’s very useful.
b. It’s not very useful.
c. It needs to use more data to be useful.
2. How do optimizers work?
a. They use past data to predict the future.
b. They use market conditions to predict the future.
c. They follow the emotions of the managers.
3. Why does he compare forecasting with driving?
a. You have to have fast instincts for both.
b. To show the danger of only looking at the past.
c. To suggest they should be based on future data.
By Jeremy Schaar
Here’s a short video that tries to answer the questions:
What are the limitations of optimization? And what’s the alternatives?
You should watch the video several times first. Then read the lesson where I’ll explain the key points. To improve your listening, listen again after you read the explanations.
He begins by saying:
Other people have gone down the optimization path.
To go down a path means to try a way of doing something.
He then explains the problem with using a computer model. You have to simplify a model because it can’t use all the information. Also, by the time you get the answer, it’s too late because the situation has changed.
Therefore, he feels that we don’t need more statistical forecasting algorithms.
What you need is systems that can handle this huge amount of data.
Notice that he says “whatcha” instead of “what you”. In English, this is a common way to say “what you”.
His point is that optimizers are OK, but they need to be able to handle more data to be successful. To handle something means to use it. In this case it means to use it well.
Optimizers are looking at history or forecast, but he feels this is a problem and makes an interesting comparison. He says:
Do you drive your car down the freeway with your windshield covered over and you’re looking in your rearview mirror.
He means that a forecasting model based on the past is the same as driving forward while looking behind you. It’s very dangerous. So the computer programs need to be able to warn you about mistakes in real time.