CHAPTER 4: FORECASTING Suggested Solutions

Summer II, 2009

Question 4.1
(a) 3-week moving average:

(b) 3-week weighted moving average:

Week of

Pints used

Weight

Computations

August 31

360

September 7

389

September 14

410

September 21

381

0.1

381x0.1= 38.1

September 28

368

0.3

368x0.3=110.4

October 5

374

0.6

374x0.6=224.4

October 12 Forecast

372.9

(c) Exponential smoothing (with a smoothing constant, = 0.2):

Week of

Forecast: Ft = Ft-1 + (At-1 Ft-1)

August 31

360

360.00

September 7

389

360.00 = 360.00 + 0.2(360 - 360.00)

September 14

410

365.80 = 360.00 + 0.2(389 - 360.00)

September 21

381

374.64 = 365.80 + 0.2(410 - 365.80)

September 28

368

375.91 = 374.64 + 0.2(381 - 374.64)

October 5

374

374.33 = 375.91 + 0.2(368 - 375.91)

October 12

Actual

374.26 = 374.33 + 0.2(374 - 374.33)

BUS P301:01

Question 4.5
(a) 2-year moving average:
(b) Mean Absolute Deviation (MAD)
Two-year
Moving Average

Error

IErrorI

3400

3500

-100

100

3800

3700

100

100

3700

3600

100

100

Totals

100

300

MAD =

300/3 = 100

Year

Mileage

3000

4000

3
4
5

(c) 2-Year Weighted Moving Average

Two-year Weighted
Moving Average

Error

IErrorI

3400

3600

-200

200

3800

3640

160

160

3700

3640

60

60

Totals

20

420

MAD =

420/3 = 140

Year

Mileage

3000

4000

3
4
5

(d) Exponential Smoothing using =0.5 and an initial forecast of 3000 for year 1.
Year

Mileage

Forecast

3000

3000

4000

Forecast Error

Error x 0.5

New Forecast

3000

3000

1000

500

3500

3400

3500

-100

-50

3450

3800

3450

350

175

3625

3700

3625

75

38

3663

Total

1325

The forecast for year 6 is 3,663 miles.

BUS P301:01

Question 4.6 Raw data set up for trend projections

January
February
March
April
May
June
July
August
September
October
November
December
Sum
Average

Y Sales

X Period

20
21
15
14
13
16
17
18
20
20
21
23

1
2
3
4
5
6
7
8
9
10
11
12

1
4
9
16
25
36
49
64
81
100
121
144

XY
20
42
45
56
65
96
119
144
180
200
231
276

78
6.5

650

1474

218
18.17

(a) Plotting the monthly sales data:

(b) [i] Nave method: The coming January = December = 23

[ii] 3-month moving average: (20 + 21 + 23)/3 = 21.33
[iii] 6-m weighted [(.1 17)+(.1 18)+(.1 20)+(.2 20)+(.2 21)+ (.3 23)]/1.0 = 20.6
[iv] Exponential smoothing with alpha, = 0.3

FOct

18 0.3(20 18)

FNov

18.6 0.3(20 18.6)

FDec

19.02 0.3(21 19.02)

FJan

19.6 0.3(23 19.6)

[v] Trend

78, x

6.5,

18.6

y = 218, y

19.02
19.6
20.62

21

18.17

1474 (12)(6.5)(18.2) 54.4

0.38
650 12(6.5)2
143
a 18.2 0.38(6.5) 15.73
Forecast = 15.73 + .38(13) = 20.67, where next January is the 13th month.
b

(c) Only trend provides an equation that can extend beyond one month.

BUS P301:01

Question 4.7 Weighted Moving Average. Assume that Present = Period (week) 6.
So:
1
A
3 6

F7

1
A
4 5

1
A
4 4

1
A
6 3

1.0

1
1
1
1
(52) +
(63) +
(48) +
(70) = 56.75 patients
3
4
4
6

Where:
1.0 = weights 0.333 + 0.25 + 0.25 + 0.167 or 1/3, , , 1/6

Question 4.13
(a) Exponential smoothing,
Year
1
2
3
4
5
6

Demand
45
50
52
56
58
?

= 0.6:
Exponential
Smoothing = 0.6

41
41.0 + 0.6(4541) = 43.4
43.4 + 0.6(5043.4) = 47.4
47.4 + 0.6(5247.4) = 50.2
50.2 + 0.6(5650.2) = 53.7
53.7 + 0.6(5853.7) = 56.3

Absolute
Deviation
4.0
6.6
4.6
5.8
4.3

= 25.3
MAD = 5.06
Exponential smoothing,
Year
1
2
3
4
5
6

= 0.9:

Demand

Exponential
Smoothing = 0.9

Absolute
Deviation

45
50
52
56
58
?

41
41.0 + 0.9(4541) = 44.6
44.6 + 0.9(5044.6 ) = 49.5
49.5 + 0.9(5249.5) = 51.8
51.8 + 0.9(5651.8) = 55.6
55.6 + 0.9(5855.6) = 57.8

4.0
5.4
2.5
4.2
2.4

= 18.5
MAD = 3.7
(b) 3-year moving average:
Year
1
2
3
4
5
6

Demand
45
50
52
56
58
?

Three-Year
Moving Average

Absolute
Deviation

(45 + 50 + 52)/3 = 49
(50 + 52 + 56)/3 = 52.7
(52 + 56 + 58)/3 = 55.3

7
5.3

= 12.3
MAD = 6.2

BUS P301:01

(c) Trend projection:

Year

Demand

1
2
3
4
5
6

45
50
52
56
58
?

Absolute
Deviation

Trend Projection
42.6 + 3.2
42.6 + 3.2
42.6 + 3.2
42.6 + 3.2
42.6 + 3.2
42.6 + 3.2

1 = 45.8
2 = 49.0
3 = 52.2
4 = 55.4
5 = 58.6
6 = 61.8

0.8
1.0
0.2
0.6
0.6

= 3.2
MAD = 0.64

a bX
XY nXY

b
a

X 2 nX 2
Y bX

XY

X2

1
2
3
4
5

45
50
52
56
58

45
100
156
224
290

1
4
9
16
25

Then: X = 15, Y = 261, XY = 815, X2 = 55,

X=

3,

= 52.2

Therefore:
815 5 3 52.2
b
3.2
55 5 3 3
a 52.20 3.20 3 42.6
Y6 42.6 3.2 6 61.8
(d)

Comparing the results of the forecasting methodologies for parts (a), (b), and (c).
Forecast Methodology
Exponential smoothing,

= 0.6

MAD
5.06

Exponential smoothing,

= 0.9

3.7

3-year moving average

Trend projection

6.2
0.64

Based on a mean absolute deviation criterion, the trend projection is to be

preferred over the exponential smoothing with = 0.6, exponential smoothing
with = 0.9, or the 3-year moving average forecast methodologies.

BUS P301:01

Question 4.14
Week

Actual

Method 1

Error

IErrorI

Error^2

Method 2

Error

IErrorI

Error^2

0.7

0.90

-0.20

0.20

0.04

0.80

-0.10

0.10

0.010

1.0

1.05

-0.05

0.05

0.00

1.20

-0.20

0.20

0.040

1.0

0.95

0.05

0.05

0.00

0.90

0.10

0.10

0.010

1.0

1.20

-0.20

1.11

-0.11

0.11

0.012

0.510

0.072

0.20

0.04

Totals

0.50

0.085

MAD

0.125

<<Better

MSE

0.021

MAD

0.128

MSE

0.018

<<Better

BUS P301:01

Question 4.39 Raw data set up for trend analysis:

Year X
1
2
3
4
5
6
7
8
9
10
55

Patients Y

X2

Y2

XY

36
33
40
41
40
55
60
54
58
61
478

1
4
9
16
25
36
49
64
81
100
385

1,296
1,089
1,600
1,681
1,600
3,025
3,600
2,916
3,364
3,721
23,892

36
66
120
164
200
330
420
432
522
610
2,900

Given: Y = a + bX where:
b
a

XY

nXY

nX 2

X
Y

bX

and
X

= 55,

5.5, Y

= 478,

XY

= 2900,

X2

= 385,

271
82.5

3.28

Y2

= 23892,

47.8,

Then:

b
a

2900 10 5.5 47.8

385 10 5.52
47.8 3.28 5.5 29.76

2900 2629
385 302.5

and Y = 29.76 + 3.28X. For:

11: Y

29.76 3.28 11 65.8

12: Y

29.76 3.28 12

Therefore:

Year 11
Year 12

69.1

65.8 patients
69.1 patients

The model seems to fit the data pretty well. One should, however, be more
precise in judging the adequacy of the model.
Two possible approaches are computation of
(a) the correlation coefficient, or (b) the mean absolute deviation.

BUS P301:01

The correlation coefficient:

n

XY

X2

X
10

10

385

X Y
2

n Y2

2900
552

55 478
10

23892

4782

29000 26290
3850 3025 238920 228484
2710
825 10436
r2

2710
2934.3

0.924

0.853

The coefficient of determination of 0.853 is quite respectableindicating our

original judgment of a good fit was appropriate.
Year
X
1
2
3
4
5
6
7
8
9
10

Patients
Y
36
33
40
41
40
55
60
54
58
61

Trend
Forecast
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28
29.8 + 3.28

1 = 33.1
2 = 36.3
3 = 39.6
4 = 42.9
5 = 46.2
6 = 49.4
7 = 52.7
8 = 56.1
9 = 59.3
10 = 62.6

Deviation

Absolute
Deviation

2.9
3.3
0.4
1.9
6.2
5.6
7.3
2.1
1.3
1.6

2.9
3.3
0.4
1.9
6.2
5.6
7.3
2.1
1.3
1.6

= 32.6
MAD = 3.26

The MAD is 3.26this is approximately 7% of the average number of patients

and 10% of the minimum number of patients. We also see absolute deviations, for
years 5, 6, and 7 in the range 5.67.3. The comparison of the MAD with the
average and minimum number of patients and the comparatively large deviations
during the middle years indicate that the forecast model is not exceptionally
accurate. It is more useful for predicting general trends than the actual number of
patients to be seen in a specific year.

BUS P301:01

Question 4.40 Raw data set up for trend analysis:

Crime
Rate X

Year
1
2
3
4
5
6
7
8
9
10
Column Totals

Patients
Y

58.3
61.1
73.4
75.7
81.1
89.0
101.1
94.8
103.3
116.2
854.0

36
33
40
41
40
55
60
54
58
61
478

X2

Y2

XY

3,398.9
3,733.2
5,387.6
5,730.5
6,577.2
7,921.0
10,221.2
8,987.0
10,670.9
13,502.4
76,129.9

1,296
1,089
1,600
1,681
1,600
3,025
3,600
2,916
3,364
3,721
23,892

2,098.8
2,016.3
2,936.0
3,103.7
3,244.0
4,895.0
6,066.0
5,119.2
5,991.4
7,088.2
42,558.6

Given: Y = a + bX where
XY nXY
b
X 2 nX 2

bX

and X = 854, Y = 478, XY = 42558.6, X2 = 76129.9,

Y2

= 23892,

= 85.4,

= 47.8.

Then:
b

and
For:

42558.6 10 85.4 47.8

76129.9 10 85.42
1737.4
0.543
3197.3
47.8 0.543 85.4 1.43

42558.6 40821.2
76129.9 72931.6

Y = 1.43 + 0.543X
X

131.2 : Y

90.6 : Y

1.43 0.543(131.2)
1.43 0.543(90.6)

72.7
50.6

Therefore:
Crime rate = 131.2
Crime rate = 90.6

72.7 patients
50.6 patients

Note that rounding differences occur when solving with Excel.

BUS P301:01