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Business Administration QUESTION #9578
Question 1
A supply chain manager notices that her 18-month demand forecast is consistently more accurate for the first 3 months and increasingly wrong beyond month 6. Which fundamental characteristic of forecasting does this illustrate?
  • Forecasts are always wrong — any forecast that extends beyond one period contains irreducible error
  • Forecast accuracy decreases as the time horizon increases — longer-range forecasts carry greater cumulative uncertainty✔️
  • Forecasting bias — systematic overestimation or underestimation skews all forecasts equally regardless of horizon
  • Causal forecasting failure — time-series models are inappropriate for supply chain demand and should be replaced with regression models
Correct Answer Explanation
One of the fundamental characteristics of forecasting is that accuracy deteriorates as the time horizon extends. Uncertainty compounds with each additional period — factors that are predictable in the short run (seasonality, known orders) become increasingly unpredictable over longer horizons. This is why supply chain managers use rolling forecasts and maintain buffer inventory for long-range periods.