Your manager is trying to determine what forecasting method to use. Based upon t
ID: 465432 • Letter: Y
Question
Your manager is trying to determine what forecasting method to use. Based upon the following historical data, calculate the following forecast and specify what procedure you would utilize.
A:
Calculate the simple three-month moving average forecast for periods 4–12.
B:
Calculate the weighted three-month moving average for periods 4–12 using weights of 0.50 (for the period t1); 0.40 (for the period t2), and 0.10 (for the period t3).
C:
Calculate the single exponential smoothing forecast for periods 2–12 using an initial forecast (F1) of 62 and an of 0.30.
D:
E:
Calculate the mean absolute deviation (MAD) for the forecasts made by each technique in periods 4–12.
Exponential smoothing with trend
E2
Your manager is trying to determine what forecasting method to use. Based upon the following historical data, calculate the following forecast and specify what procedure you would utilize.
Explanation / Answer
A. 3 month moving average forecasts will use the data of the last 3 months and the forecast will be the average of the demand of the 3 months. Forecast for 4th month = (demand of month 1+month 2+ month 3)/3. forecast for 5th month = (demand for month 2+month 3+ month 4)/3 and so on.
B. In this method, weights will be assigned as given. For the 4th month forecast (t = 4). weight for 3rd month will be = 0.5, 2nd month = 0.4 and 3rd month = 0.1. Thus forecast = sum of (weights*actual demand)/sum of weights
forecast for 4th month = 0.5*68+0.4*66+0.1*63/(0.5+0.4+0.1) = 66.7
C. The formula used for single exponential smoothing forecast = last period's forecast + alpha*(last period's actual demand - last period's forecast).
Forecast for month 2 = 62+0.30*(63-62) = 62.30
D. adjusted forecast = exponentially smoothed forecast+exponentially smoothed trend. Exponentially smoothed forecast will be calculated using the formula as mentioned in "C" above.
exponentially smoothed trend = beta*(this period's forecast - last period's forecast)+ (1-beta)*trend estimate for last period
Tt= beta*(ft-ft-1) + (1-beta)*tt-1
E. MAD = sum of absolute values of (demand in period t - forecast in period t)/n
E2: MAD is lowest for 3 months weighted moving average and so this method will be preferred.
Month Actual demand 3 month total 3 month average 1 63 2 66 3 68 4 69 197 65.67 5 70 203 67.67 6 72 207 69.00 7 73 211 70.33 8 73 215 71.67 9 73 218 72.67 10 76 219 73.00 11 85 222 74.00 12 80 234 78.00Related Questions
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