Gas demand forecast: criteria that must be considered
The designer, who will develop a new system for forecasting the gas needs of this company, should consider several criteria in order to specify the structure and features of this application. The first and probably most crucial criterion is the type and number of customers the organization serves. On its basis, the designer will be able to single the major data sets that should be incorporated into the system. Overall, the client base of Citizen’s Gas Company can be divided into through groups:
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- residential clients;
- commercial businesses;
- industrial enterprises (Rommey & Steinbart, 2009, p 773).
These groups will form the major data items because their monthly and annual demand for gas varies. Moreover, their gas consumption depends upon various factors, for instance, the changes in weather or industrial purposes. Therefore, it is possible to argue that the company has to use different forecasting techniques and models for each of these groups.
The second criterion that should be taken into account is the range of the forecast, in other words, the period of time for which the prediction is made. This criterion is important for the designers because it helps to better identify and measure those factors which influence the level of demand. In the case study, it is said that the system should provide a monthly gas plan for the next five years (Rommey & Steinbart, 2009, p 773).
This is why this forecasting tool should include historical records about monthly demand variations in various sectors. For example, gas use among residential customers is correlated with the weather, and the company should pay attention to temperature, sun heat-value, and wind forecasts for the next month as these forces determine the consumption of gas among residential customers. In turn, industrial demand for gas is much more volatile, and the management should keep a detailed daily demand history in order to estimate monthly gas consumption (Flock, 1994, p 23).
If the range of forecast is longer, and the management has to estimate the average gas demand for the next year, they would need to consider such data as the climate change in a particular region, growth rates among industrial and commercial companies, changes in the manufacturing process, and so forth. So, these are the two most important criteria that must be kept in mind by the management.
The major data items that should be incorporated into the system
Thus, we can single out three major data items that must be included in the system, they are as follows:
- residential demand for gas;
- commercial demand,
- industrial demand1.
It should be noted that previously this organization projected gas demand only as a function of the total number of customers (Rommey & Steinbart, 2009, p 773). They did not investigate gas consumption trends within these groups, and such an approach is erroneous in its core because the gas use, as well as the demand, varies among their clients. This is the reason why the management of Citizen’s Gas Company should adopt a new technique for the estimation of their gas needs.
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The importance of data items
Now that we have identified the three major data sets that have to be incorporated into the system, we need to explain why they are important, and why the information should be structured in this particular way. The first data item is the residential demand for gas. It should be borne in mind that individual customers are the largest consumers of gas, they purchase 80 billion cubic feet, and this is approximately 65 percent of the total amount of sales, made by Citizen’s Gas Company. However, the main reason why this data set is important is that their gas demand is governed by a distinctive pattern, namely, changes in weather. Furthermore, their consumption pattern is not similar to that one of industrial and commercial organizations, and it is much easier to predict.
The second and third groups of data items are industrial and commercial demand. On the one hand, it is possible to suggest that they can be viewed as a single group, for example, the consumption of gas in organizations. The key difference between them is that the gas used in commercial companies depends mostly upon the size of the organization and the weather factor, whereas in industrial enterprises, the level of demand is affected by a greater number of forces, including the peculiarities of the manufacturing process, the demand for the company’s products, work stoppages, and so forth (Payne, 2000).
The industrial demand is very difficult to estimate, and it should be examined only as a separate group. So, we can argue that the differences, existing between customers are the main reason why data should be divided into three groups. By analyzing each of these data items, Citizen’s Gas Company would be better able to estimate their gas needs for the next month as well as for the next five years.
The level of detail
The management of this organization has to examine very specific information in order to make sure that their estimations of gas demand are accurate. As far as residential demand, we may say they should primarily investigate historical records, in other words, they need to determine how much gas was consumed by individual customers during a certain period of time in the previous and the year before. In addition, the company has to obtain a detailed weather forecast for the next month, which is also based on the analysis of historical records. Another important issue is the demographic tendencies in the region, namely, they need to determine whether the number of people, living in this area, has increased or decreased. Therefore, in this case, the level of detail is not very high.
In turn, commercial and industrial customers require much closer scrutiny. First of all, the company should collect data about historical monthly consumption in commercial and industrial companies. It should be emphasized that in some cases, the collection of these data should be done on an individual basis, especially if we are speaking about large enterprises. Furthermore, the analysts of Citizen’s Gas Company should examine the trends in gas consumption across various industries because they need to know the extent to which certain types of industrial enterprises are dependent on gas supply.
The key issue is that industrial and commercial enterprises are trying to reduce their gas consumption and the management of Citizen’s Gas Company should take this tendency into account. So, the level of detail should be much higher for these two groups.
Flock, M. (1994). Forecasting winter daily natural gas demand at Vermont Gas Systems. The Journal of Business Forecasting Methods & Systems, 13(1), 23. Web.
Payne. F. (2000). User’s Guide to Natural Gas Purchasing and Risk Management. NY: The Fairmont Press, Inc.
Rommey M. & Steinbart P. (2009) Accounting Information Systems. Upper Saddle River, NJ; Pearson.
- The demand should be measured cubic meters per month.