Forecast, Moving average

Month Demand 2 month 3 month 4 month

Jan 92 Deman
Feb 83 100
Mar 66 90
Apr 74 80
May 75 70
Jun 84 60
Jul 84 50
Aug 81
40
Sep 75
30
Oct 63
20
Nov 91
10
Dec 84
0
Jan 87.5 79.33 78.25 Jan Feb Mar Apr May Jun Ju
 Demand

Mar Apr May Jun Jul Aug Sep Oct Nov Dec
 Forecasts
alpha
Month Demand 0.1 0.2 0.9
Jan 92
Feb 83 100
Mar 66 90
Apr 74 80
May 75 70
Jun 84 60
Jul 84
50
Aug 81
40
Sep 75
30
Oct 63
20
Nov 91
10
Dec 84 90.0 90.0 90.0
0
Jan 81.0 72.0 81.9 Jan Feb Ma r

New forecast = alpha*Latest demand + (1-alpha)*Previous Forecast

Assume Forecast for Dec = 90 units

 Demand
100
90
80
70
60
50
40
30
20
10
0
Jan Feb Ma r Apr May Jun Jul Aug Sep Oct Nov Dec
Quarter Demand 140
1 122
120
2 108
3 81 100
4 90 80

Demand
5 130
6 100 60

7 73 40
8 96
20
9 132
10 98 0
11 71 Quarter
12 99
 Quarter
Year 1 2 3 4
1 122 108 81 90
2 130 100 73 96
3 132 98 71 99 Total
Average 128 102 75 95 400

Seasonal Index 1.28 1.02 0.75 0.95 4.0

If next year's demand forecast is 625, what is the forecast for each quarter?

Quarter
Year 1 2 3 4
4 200.0 159.4 117.2 148.4 625.0
 Forecast, Moving average
Month Demand 2 month 3 month 4 month
Jan 92
Feb 83
Mar 66 87.50
Apr 74 74.50 80.33
May 75 70.00 74.33 78.75
Jun 84 74.50 71.67 74.50
Jul 84 79.50 77.67 74.75
Aug 81 84.00 81.00 79.25
Sep 75 82.50 83.00 81.00
Oct 63 78.00 80.00 81.00
Nov 91 69.00 73.00 75.75
Dec 84 77.00 76.33 77.50
Jan

Mean Absolute Error (MAD)

Three period Moving Average has least

MAD for past forecasts, hence choose 3
period moving average for making
forecasts.
 Absolute Error
2 month 3 month 4 month

21.50
0.50 6.33
5.00 0.67 3.75
9.50 12.33 9.50
4.50 6.33 9.25
3.00 0.00 1.75
7.50 8.00 6.00
15.00 17.00 18.00
22.00 18.00 15.25
7.00 7.67 6.50

9.6 8.5 8.8

 Forecasts
alpha
Month Demand 0.1 0.2 0.9
Jan 92 90.00 90.00 90.00
Feb 83 90.20 90.40 91.80
Mar 66 89.48 88.92 83.88
Apr 74 87.13 84.34 67.79
May 75 85.82 82.27 73.38
Jun 84 84.74 80.82 74.84
Jul 84 84.66 81.45 83.08
Aug 81 84.60 81.96 83.91
Sep 75 84.24 81.77 81.29
Oct 63 83.31 80.42 75.63
Nov 91 81.28 76.93 64.26
Dec 84 82.25 79.75 88.33
Jan

New forecast = alpha*Latest demand + (1-alpha)*Previous Forecast

Assume Forecast for Jan = 90 units

 Absolute Deviation
alpha=
0.10 0.20 0.90
2.00 2.00 2.00
7.20 7.40 8.80
23.48 22.92 17.88
13.13 10.34 6.21
10.82 7.27 1.62
0.74 3.18 9.16
0.66 2.55 0.92
3.60 0.96 2.91
9.24 6.77 6.29
20.31 17.42 12.63
9.72 14.07 26.74
1.75 4.25 4.33

Mean Absolute Error (MAD) 8.55 8.26 8.29

For Alpha=0.20 MAD was least for past forecasts, hence choose Alpha=0.2 for making forecasts.
 Cumulative Tracking
Period Forecast Actual Deviation deviation signal
5 2.5
1 100 96 -4 1 0.5
2 100 98 -2 -1 -0.5
3 100 104 4 3 1.5
4 100 110 10 13 6.5

MAD= 2, given
Cumulative deviation till period 0=5, given