Professional Documents
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Forecasting
Slides 13b:
Time-Series Models;
Measuring Forecast Error
Forecasting Models
Forecasting
Techniques
Qualitative
Models
Time Series
Methods
Delphi
Method
Jury of Executive
Opinion
Sales Force
Composite
Consumer Market
Survey
Naive
Moving
Average
Weighted
Moving Average
Exponential
Smoothing
Trend Analysis
Causal
Methods
Simple
Regression
Analysis
Multiple
Regression
Analysis
Seasonality
Analysis
Multiplicative
Decomposition
Time
series
value
Future
Ft Yt 1
or
Ft Yt 4 : Quarterly data
Ft Yt 12 : Monthly data
(Yt Ft ) / T
t 1
(Yt Ft ) 2 / T
t 1
t 1
t 1
Nave Forecast
Wallace Garden Supply
Forecasting
Period
January
February
March
April
May
June
July
August
September
October
November
December
Actual
Nave
Value
Forecast
10
N/A
12
10
16
12
13
16
17
13
19
17
15
19
20
15
22
20
19
22
21
19
19
21
Error
2
4
-3
4
2
-4
5
2
-3
2
-2
0.818
BIAS
Absolute
Error
2
4
3
4
2
4
5
2
3
2
2
3
MAD
Percent
Error
16.67%
25.00%
23.08%
23.53%
10.53%
26.67%
25.00%
9.09%
15.79%
9.52%
10.53%
17.76%
MAPE
Squared
Error
4.0
16.0
9.0
16.0
4.0
16.0
25.0
4.0
9.0
4.0
4.0
10.091
MSE
3.176619
25
20
Sheds
15
Actual Value
Nave Forecast
10
0
February
March
April
May
June
July
Period
August
September
October
November
December
Yt Yt 1 ... Yt n 1
Ft 1
n
Moving Averages
Wallace Garden Supply
Forecasting
Storage Shed Sales
Period
January
February
March
April
May
June
July
August
September
October
November
December
Actual
Value
10
12
16
13
17
19
15
20
22
19
21
19
10
12
16
13
17
19
15
20
22
+
+
+
+
+
+
+
+
+
12
16
13
17
19
15
20
22
19
+
+
+
+
+
+
+
+
+
16
13
17
19
15
20
22
19
21
/
/
/
/
/
/
/
/
/
3
3
3
3
3
3
3
3
3
=
=
=
=
=
=
=
=
=
12.67
13.67
15.33
16.33
17.00
18.00
19.00
20.33
20.67
Input Data
Period
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Next period
Forecast
12.667
13.667
15.333
16.333
17.000
18.000
19.000
20.333
20.667
Average
Error
0.333
3.333
3.667
-1.333
3.000
4.000
0.000
0.667
-1.667
1.333
BIAS
Absolute
error
0.333
3.333
3.667
1.333
3.000
4.000
0.000
0.667
1.667
2.000
MAD
Squared
error
0.111
11.111
13.444
1.778
9.000
16.000
0.000
0.444
2.778
6.074
MSE
Absolute
% error
2.56%
19.61%
19.30%
8.89%
15.00%
18.18%
0.00%
3.17%
8.77%
10.61%
MAPE
25
20
Value
15
Actual Value
Forecast
10
0
1
7
Time
10
11
12
Weighted
Moving
Average
Wallace Garden Supply
Forecasting
Storage Shed Sales
Period
January
February
March
April
May
June
July
August
September
October
November
December
Next period
Actual
Value
Weights
10
0.222
12
0.593
16
0.185
13
17
19
15
20
22
19
21
19
20.185
Sum of weights =
1.000
2.2
2.7
3.5
2.9
3.8
4.2
3.3
4.4
4.9
+
+
+
+
+
+
+
+
+
7.1
9.5
7.7
10
11
8.9
12
13
11
+
+
+
+
+
+
+
+
+
3
2.4
3.2
3.5
2.8
3.7
4.1
3.5
3.9
/
/
/
/
/
/
/
/
/
1
1
1
1
1
1
1
1
1
=
=
=
=
=
=
=
=
=
12.298
14.556
14.407
16.484
17.814
16.815
19.262
21.000
20.036
Input Data
Period
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Next period
Sum of weights =
Weights
0.222
0.593
0.185
Forecast
12.298
14.556
14.407
16.484
17.814
16.815
19.262
21.000
20.036
Average
20.185
1.000
Error
0.702
2.444
4.593
-1.484
2.186
5.185
-0.262
0.000
-1.036
1.988
BIAS
Absolute
error
0.702
2.444
4.593
1.484
2.186
5.185
0.262
0.000
1.036
6.952
MAD
Squared
error
0.492
5.971
21.093
2.202
4.776
26.889
0.069
0.000
1.074
6.952
MSE
Absolute
% error
5.40%
14.37%
24.17%
9.89%
10.93%
23.57%
1.38%
0.00%
5.45%
10.57%
MAPE
Period
January
February
March
April
May
June
July
August
September
October
November
December
Actual
Value(Y t )
10
12
16
13
17
19
15
20
22
19
21
19
t-1
10
10
10
10.2
10.78
11.002
11.602
12.342
12.607
13.347
14.212
14.691
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
+
+
+
+
+
+
+
+
+
+
+
t-1
Yt-1
*(
*(
*(
*(
*(
*(
*(
*(
*(
*(
*(
10
12
16
13
17
19
15
20
22
19
21
10
10
10.2
10.78
11.002
11.602
12.342
12.607
13.347
14.212
14.691
t
)=
)=
)=
)=
)=
)=
)=
)=
)=
)=
)=
10.000
10.200
10.780
11.002
11.602
12.342
12.607
13.347
14.212
14.691
15.322
Class Exercise: What is the forecast for January of the following year?
How about March? Find the Bias, Mad & MAPE. (Note: equals 0.1.)
Exponential Smoothing
(Alpha = .419)
Wallace Garden Supply
Forecasting
Exponential smoothing
Input Data
Period
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Actual value
10
12
16
13
17
19
15
20
22
19
21
19
Alpha
0.419
Next period
19.573
Forecast
10.000
10.000
10.838
13.000
13.000
14.675
16.487
15.864
17.596
19.441
19.256
19.987
Average
Error
2.000
5.162
0.000
4.000
4.325
-1.487
4.136
4.404
-0.441
1.744
-0.987
Absolute
error
2.000
5.162
0.000
4.000
4.325
1.487
4.136
4.404
0.441
1.744
0.987
2.608
MAD
Squared
error
4.000
26.649
0.000
16.000
18.702
2.211
17.106
19.391
0.194
3.041
0.973
9.842
MSE
Absolute
% error
16.67%
32.26%
0.00%
23.53%
22.76%
9.91%
20.68%
20.02%
2.32%
8.30%
5.19%
14.70%
MAPE
ct
ob
er
ec
em
be
r
ov
em
be
r
Se
pt
em
be
r
Au
gu
st
Ju
ly
Ju
ne
M
ay
Ap
ri l
M
ar
c
Fe
br
ua
ry
Ja
nu
ar
y
Sheds
Exponential Smoothing
Exponential Smoothing
25
20
15
Actual value
Forecast
10
Performance Measures
Sample Example
Find the forecasts and the errors for each forecasting
technique applied to the following stationary time series.
Time
Time series:
3 4
100
- 20
98
- 18
93.33
11.67
89
16
91.6
23.4
85.5
29.5
Performance Measures
MAD for the Sample Example
MAD for the moving average technique:
MAD =
S |D t|
n
MAD =
S |D t|
n
= 21.17
Performance Measures
MAPE for the Sample Example
MAPE for the moving average technique:
|D t|
S
MAPE=
n
|D t|
S
MAPE=
n
= .211
Performance Measures
Selecting Model Parameters
Use the performance measures to select a good set
of values for each model parameter.
For the moving average:
the number of periods (n).
Seasonality analysis
Adjustment to time series data due to variations at
certain periods.
Adjust with seasonal index - ratio of average value of
the item in a season to the overall annual average value.
Examples: demand for coal in winter months; demand
for soft drinks in the summer and over major holidays
Period
number
(or) X
1995
1996
1997
1998
1999
2000
2001
160
140
120
100
80
60
40
20
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
Objective: Minimize
the squared deviations!
Time
Y a bX
^
_ _
[ XY - n X Y ]
_
2
2
X
n
X
Enter the actual values in cells shaded YELLOW. Enter new time period at the bottom to forecast
Input Data
Period
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Intercept
Slope
Next period
Forecast
67.250
77.786
88.321
98.857
109.393
119.929
130.464
Average
Error
6.750
1.214
-8.321
-8.857
-4.393
22.071
-8.464
Absolute
error
6.750
1.214
8.321
8.857
4.393
22.071
8.464
8.582
MAD
Squared
Absolute
error
% error
45.563
9.12%
1.474
1.54%
69.246 10.40%
78.449
9.84%
19.297
4.18%
487.148 15.54%
71.644
6.94%
110.403
8.22%
MSE
MAPE
140
y = 10.536x + 56.714
120
Value
100
80
60
40
20
0
1
Time
Actual values
C oe ff.
S ta nd. E rr
t-S ta t
P -va lue
Lowe r 9 5 %U ppe r 9 5 %
369.27
0.3339
Seasonal
Index
0.957
0.851
0.904
1.064
1.309
1.223
1.117
1.064
0.957
0.851
0.851
0.851
0.957
0.851
0.904
1.064
1.309
1.223
1.117
1.064
0.957
0.851
0.851
0.851