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Forecasting Technique Time Series Analysis Forecasting Errors Using EXCEL

The document discusses various forecasting techniques including time series analysis methods like simple moving average, weighted moving average, and exponential smoothing. It provides an example to illustrate these techniques and calculates forecasting errors using mean absolute deviation. Regression analysis is also covered with assumptions, an example, and a review of the relevant formulas. Finally, the document provides guidance on using Excel for moving average, exponential smoothing, and regression forecasting methods.

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Mohammed Al-Ftesi
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69 views7 pages

Forecasting Technique Time Series Analysis Forecasting Errors Using EXCEL

The document discusses various forecasting techniques including time series analysis methods like simple moving average, weighted moving average, and exponential smoothing. It provides an example to illustrate these techniques and calculates forecasting errors using mean absolute deviation. Regression analysis is also covered with assumptions, an example, and a review of the relevant formulas. Finally, the document provides guidance on using Excel for moving average, exponential smoothing, and regression forecasting methods.

Uploaded by

Mohammed Al-Ftesi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Forecasting

Forecasting technique
Time series analysis
Forecasting errors
Using EXCEL
Forecasting
techniques (pg. 436 Exhibit 11.1)
1.  Statistical (Time Series, Causal)
2.  Judgement/Qualitative (Expert opinion, Market Survey, Delphi)

Time series analysis


1.  Simple moving average
2.  Weighted moving average
3.  Exponential smoothing
4.  Regression analysis

An Example

Month Demand 3-month Moving 3-month Wt. Moving Exponential


Average Average  Smoothing 

(weights: 0.2, 0.3, 0.5) (alpha = 0.1)

1 650      

2 700     0.1*650+0.9*650
= 

650

3 810     0.1*700+0.9*650 =

655

4 800 (650+700+810)/3 = 0.2*650+0.3*700+0.5*810 0.1*810+0.9*655


= 
720 = 
670.5
745

5 900 (700+810+800)/3 = 0.2*700+0.3*810+0.5*800 0.1*800+0.9*670.5


770 =  = 

783 683.5

6 700 (810+800+900)/3 = 0.2*810+0.3*800+0.5*900 0.1*900+0.9*683.5


837 =  =
705.2

852

7   (800+900+700)/3 = 0.2*800+0.3*900+0.5*700 0.1*700+0.9*705.2


800 = =
 780 704.7

Illustration
Pg.472 Problem 2

Exercise:

pg473 Problem 9

Forecasting errors
Mean Absolute Deviation (MAD) (pg.448)
 

An Example
 

Demand 3-month Deviation Absolute


Moving
Average Deviation

800 720 800-720 = 80 80

900 770 900-770 = 130


130

700 837 700-837 = 137


-137

Sum of Absolute Deviation = 80+130+137 = 347

MAD = 347/3 = 115.7


 

Demand 3-month Wt. Deviation Absolute


Moving
Average Deviation

800 745 800-745 = 55 55

900 783 900-783 = 117


117

700 852 700-852 = 152


-152

Sum of Absolute Deviation = 55+117+152 = 324

MAD = 324/3 = 108


 

Demand Exponential Deviation Absolute


Smoothing
Deviation
800 670.5 800-670.5 = 129.5 129.5

900 683.5 900-683.5 = 216.5 216.5

700 705.2 700-705.2 = -5.2 5.2


 
Sum of Absolute Deviation =
129.5+216.5+5.2 = 351.2
 
MAD = 351.2/3 = 117.1
 
Hence, the 3-mth weighted moving
average has the lowest MAD and is the best forecast
method among the three.
 

Control limits for a range of MADs (Pg.450 Exhibit 11.11)

Number of Accuracy
MADs

+/- 1 57%

+/- 2 88.9%

+/- 3 98.3%

+/- 4 99.9%

With 57% accuracy, the forecast demand for July using 3-mth Wt. Moving
Average = 780 +/-
108 (672 to 888)

With 88.9% accuracy, the forecast demand for July using 3-mth Wt. Moving
Average = 780+/-
2*108 (564 to 996)

Exercise:

pg.471 Problem 3, 11

Regression Analysis

Assumptions
1.  Linear -- the past data and future projections are fall about a
straight line (least squares
method: minimize the sum of squared forecast
error)
2.  Time is the independent variable, x

Y = a + bx
An example
 

  Month Profit (y) xy x2


(x)

  1 31 31 1

  2 40 80 4

  3 30 90 9

  4 34 136 16

  5 25 125 25

  6 20 120 36

Total 21 180 582 91

Average 3.50 30.00 97.00 15.17

b = (582-6*3.5*30)/(91-6*3.5*3.5) = -2.7

a = 30-(-2.7)*3.5 = 39.6

Y = 39.6 - 2.7x

Coding the time variable to simplify computation (i.e., 

Case 1: odd number of time elements


 

Time Code

January -2

February -1

March 0

April 1

May 2

Case 2: even number of time elements


 
Time Code

January -3

February -1

March 1

April 3

If  then

Example
 

  Month Profit (y) Code (x) x2 xy


  1 31 -5 25 -155
  2 40 -3 9 -120
  3 30 -1 1 -30
  4 34 1 1 34
  5 25 3 9 75
  6 20 5 25 100
Total 21 180 0 70 -96
Average 3.50 30.00 0.00 11.67 -16.00

b = -96/70 = -1.4

a = 30

Y = 30 - 1.4x

Forecasting error

Standard error of estimate


or

  Month (x) Profit (y) xy y2


  1 31 31 961
  2 40 80 1600
  3 30 90 900
  4 34 136 1156
  5 25 125 625
  6 20 120 400
Total 21 180 582 5642

= 5.25
or
 
 

= 5.25
 
 

Number of Accuracy
Syx

+/- 1 68%

+/- 2 95.5%

+/- 3 99.7%

Formula review (pg.466)

Exercise:

Pg.471 Problems 17

Using Excel
1.  Click Tools, Click Data Analysis
2.  Choose Moving Average/Exponential Smoothing/Regression
 
Method Parameter Excel Reminder
terminology

N-mth Moving N  Interval Output range should be one cell


average lower than the input range

Exponential 1-a Damping factor Output range should be at the same


Smoothing row as the input range

Regression a Intercept Label should be checked if you


include the column heading
in your
b X variable or input ranges
Label

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