Scribd
Upload
16 views28 pages

FORECASTING

The document discusses various forecasting methods including moving averages, hand fitting, least squares, seasonal indexes, and exponential smoothing. It provides examples of how to compute forecasts using these techniques, emphasizing the importance of selecting appropriate periods and weights. Additionally, it illustrates the impact of different smoothing factors on forecast accuracy and trend representation.

Uploaded by

Raghav Joseph
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
16 views28 pages

FORECASTING

The document discusses various forecasting methods including moving averages, hand fitting, least squares, seasonal indexes, and exponential smoothing. It provides examples of how to compute forecasts using these techniques, emphasizing the importance of selecting appropriate periods and weights. Additionally, it illustrates the impact of different smoothing factors on forecast accuracy and trend representation.

Uploaded by

Raghav Joseph
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
You are on page 1/ 28

(a) The data points appear relatively linear

(b
)
The MA forecast for year 12 would be that of the latest average, 17.0
tons
e.g. The demand for a product during past 20 periods and
the forecasted demand by method of moving average are
given in a table. For comparison, results have been given for
forecast made by averaging past demands of four and two
moving average.
Comparison of forecasts with moving averages of two and four periods.
e.g. A food processor uses a moving average to forecast next month’s
demand. Past actual demand (in units) is as shown in the table.

a) Compute a simple 5-month moving average to forecast demand for


month 52.
b) Compute a weighted 3-month moving average where the weights are
highest for the latest months and descend in order of 3,2,1.
2. HAND FITTING

A hand fit or freehand curve is a plot of a representative line that


seems to best fit the data points

For linear data, the forecasting equation will be of the form:

Yc = a + b (X) (signature)

Yc = Trend value
a = Intercept
b = Slope

X is the time value (years, quarters, etc.)

The “signature” identifies the point in time when X = 0, as well as the X and Y units.
e.g.4:(a) Use a hand fit line to “develop a
forecasting equation for the data shown. State the
equation, complete with signature.
(b) Use equation to forecast tube shipments for year
12.
3. LEAST SQUARES Mtd.

A mathematical technique of fitting a trend to data points

Properties of line of best fit:

(1) The summation of all vertical deviations about it is zero


(2)The summation of all vertical deviations squared is a minimum
(3) The line goes through the means X and Y

▪ For linear equations, the line of best fit is found by the simultaneous solution for a and b of the following two normal
equations:
With time series, when the data is coded ΣX = 0

To code the time series data, designate the center of the time span
as X = 0 and let each successive period be ±1 more unit away

(For an even number of periods, use values of ±0.5, 1.5, 2.5, etc.)
e.g. 5: Use the least square method to develop a linear trend equation
for the data from e.g.1 State the equation and forecast a trend value for
year 16.
Seasonal indexes: A seasonal index (SI): a ratio that
relates a recurring seasonal variation to the
corresponding trend value at the given time

❑The index is used to obtain seasonalized forecast


values, Ysz

Ysz = (SI)Yc
e.g.6 Sports International has experienced low snowboard
sales in July, as shown in Table. Using the ratio-to-trend
values, calculate a seasonal index value for July and explain
its meaning

Total = 0.94.
(a) A third row shows the ratio of actual to trend values for July

The July index is SIJuly = 0.94 ÷ 7 = 0.13


This means that July is typically only 13 per cent of the trend value for July in any
given year
EXPONENTIAL SMOOTHING

❑ A moving-average forecasting technique that weights past data in an


Exponential manner so that most recent data carry more weight in the
moving average

Simple Exponential smoothening

The forecast Ft is made up of the last period forecast Ft–1 plus a portion, α,
of the difference between the last period’s actual demand At–1 and last
period forecast Ft–1.

Ft = Ft–1 + α (At–1– Ft–1)

α = smoothing factor of data; 0 < α < 1


e.g.8 A firm uses simple exponential smoothing with α = 0.1
to forecast demand. The forecast for the week of February 1
was 500 units, whereas actual demand turned out to be 450
units

(a) Forecast the demand for the week of February 8

(b) Assume that the actual demand during the week of


February 8 turned out to be 505 units.
Forecast the demand for the week of February 15, Continue
forecasting through March 15, assuming that subsequent
demands were actually 516, 488, 467, 554 and 510 units
SOLUTION

(a)
Ft = Ft–1 + α (At–1– Ft–1)
= 500 + 0.1(450 – 500)
= 495 units
(b)
# Consider the time series with nine periods of data:

34, 38, 46, 41, 43, 48, 51, 50, 56

Use exponential smoothing to forecast the value for period 10.

Assume F2 = A1 = 34 and = 0.2.

https://courses.worldcampus.psu.edu/welcome/mangt515/lesson02_12.html
Solution:
Using the exponential smoothing formula
New forecast = old forecast + (latest observation - old forecast)

the forecast for period 3 is given by:

F3 = F2 + (A2 - F2 ) = 34 + 0.2(38 - 34) = 34.8


Similarly, the forecast for period 4 will be:

F4 = F3 + ( A3 - F3 ) = 34.8 + 0.2(46 - 34.8) = 37.04

This process can be repeated for the remaining periods to get a smoothed
series given below.

34, 34.8, 37.04, 37.83, 38.87, 40.69, 42.75, 44.20, 46.56

Thus, the forecast for period 10 is given by F10 = 46.56


It can be seen that this series does produce a smooth trend but it also
shows a marked "lag."

Sensitivity of the forecasts for the above example can be improved by


changing the value of a to 0.5.

In this case the smoothed series becomes:

34, 36, 41, 42, 45, 48, 49, 49.5, 52.75 and the forecast for period 10 is
now given by:

F10 = 52.75.
The results obtained for these different smoothing factors are shown
graphically in Figure.

See the highly damped smoothing and the considerable lag associated with
the forecasts generated using = 0.2 when compared to = 0.5.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy