Professional Documents
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FORECASTING
(metrology, population, price, growth, demand forecast
etc….)
What is forecasting?
Predictions, projections or estimates of future events
Economic forecasts
Technological forecasts
1. Qualitative Methods
2. Delphi method
2. Delphi method
Iterative group process, continues until
consensus is reached
3 types of participants
Staff
Respondents
Decision makers
3. Sales force composite
2. Quantitative Methods
1. Naive approach
2. Moving averages Time-series models
3. Exponential smoothing
4. Trend projection
5. Linear regression Associative
model
Time series forecasting
Set of evenly spaced numerical data
* Obtained by observing response variable at regular time periods
Forecast based only on past values, no other variables important
* Assumes that factors influencing past and present will continue influence in future
Time Series
The forecast statement of time series can be:
Point forecast: a single number
Interval forecast: an interval
Density forecast: the probability density
1. Naive approach
Assumes demand in next period is the same as demand in most recent period
e.g., If January sales were 68, then February sales will be 68
Sometimes cost effective and efficient
Can be good starting point
2a. Moving average method
MA is a series of arithmetic means
In words: the arithmetic average of the n most recent observations. For a one-step-ahead
forecast:
Ft = (1/N) (Dt - 1 + Dt - 2 + . . . + Dt - n )
Actual 3-Month
Month Shed Sales Moving Average
January 10
February 12
March 13
April 16 (10 + 12 + 13)/3 = 11.67
May 19 (12 + 13 + 16)/3 = 13.67
June 23 (13 + 16 + 19)/3 = 16
July 26 (16 + 19 + 23)/3 = 19.33
Moving Average - example
MONTH Demand Month Demand
3 month MA:
January 89 July 223 =(oct+nov+dec)/3=258.33
February 57 August 286
4 - 17
Graph of Moving Average
30 –
28 – Moving
26 – Average
– Forecast
24 Actual
22 – Sales
Sales
20 –
18 –
16 –
14 –
12 –
10 –
| | | | | | | | | | | |
J F M A M J J A S O N D
2b. Weighted moving average
• Used when some trend might be present
• Older data usually less important
• Weights based on experience and intuition
Weighted ∑ (Weight for period n) x
Moving Average = (Demand in period n)
∑ Weights
This method looks at past data and tries to logically attach importance to certain data over other
data. Can weight recent higher than older. For example:
If forecasting staffing, we could use data from the last four weeks where Tuesdays are to be
forecast.
Weighting on Tuesdays is: T-1 is .25; T-2 is .20; T-3 is .15; T-4 is .10 and Average of all other days
is weighed .30.
WEIGHTED MOVING AVERAGE Weights Applied Period
3 Last month
2 Two months ago
1 Three months ago
6 Sum of weights
New forecast = Last period’s forecast + α (Last period’s actual demand– Last period’s forecast)
Ft = Ft – 1 + α(At – 1 - Ft – 1)
New forecast = Last period’s forecast + α (Last period’s actual demand– Last period’s forecast)
Impact of ’s
225 –
200 – Actual
demand a = 0.5
Demand
175 –
150 – a = 0.1
| | | | | | | | |
1 2 3 4 5 6 7 8 9
Quarter
Impact of ’s
225 –
200 –
Chose high values of when underlying
Actual
average isdemand
likely to change = 0.5
Demand
150 – = 0.1
| | | | | | | | |
1 2 3 4 5 6 7 8 9
Quarter
Choosing
n
∑[100|Actuali - Forecasti|]/Actuali
MAPE = i = 1
n
NEXT CLASS
4 - 30
COMPARISON OF FORECAST ERROR Ft = Ft – 1 + α(At – 1 - Ft – 1)
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded = 0.10 = 0.10 = 0.50 = 0.50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
175+(180-175)x0.1=175.5 82.45 98.62
COMPARISON OF FORECAST ERROR
4 - 36
COMPARISON OF FORECAST ERROR
Actual Rounded Absolute Rounded Absolute
Tonnage Forecast Deviation Forecast Deviation
Quarter Unloaded = 0.10 = 0.10 = 0.50 = 0.50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
Mean Absolute Deviation ) MAD 10.31 12.33
Mean Squared Error MSE 190.82 195.24
Mean Absolute Percent Error MAPE 5.59% 6.76%