The Weighted Moving Average Forecast

❖The (simple) Moving Average forecast (order n) treats each

of the n most recent demands EQUALLY in generating the
forecast for the next period

❖The Weighted Moving Average forecast (order n) weights

each of the n most recent demands (possibly) DIFFERENTLY
in generating the forecast for the next period
Method 4: Weighted Moving Average (WMA)
● When a detectable trend or pattern is present, weights can be
used to place more emphasis on recent values

● Weights based onintuition

❖ Weights are values between 0 and 1
❖ Weights sum to 1.0
❖ Weights impact stability and responsiveness of the forecast

● Formula

Ft= w1At-1+ w2 At-2+w3 At-3+...+wn At-n

 Method 4 : Weighted Moving Average (WMA)

n=3:
Forecast of Demand
in Period 2 (This
Period Demand Forecast wt-1=0.5, w t-2=0.3,
forecast made after
wt-3=0.2
seeing Demand in 1 130 -
Period 1)
2 155 - Not enough history

3 145 - Not enough history

Forecast of 4 160 145.00 0.2(130)+0.3(155)+0.5(145) =

145.00
Demand in Period
5 (This forecast 5 151 154.50 0.2(155)+0.3(145)+0.5(160) =
154.50
made after seeing
Demand in Period
4) 6 143 152.20 0.2(145)+0.3(160)+0.5(151) =
152.50

7 148.80 0.2(160)+0.3(151)+0.5(143) =
148.80
Question-1
Day Number Sold
a) If a two-period moving average had been used to
1 25 forecast sales, what would the daily forecasts have
2 31 been starting with the forecast for Day 3?
3 29 b) If a four-period moving average had been used
4 33 determine what the forecasts would have been for
5 34 each day, starting with Day 5.
6 37 c) Use a three-period weighted moving average with
7 35 w1=0.2, w2=0.3, and w3=0.5 and forecast sales for
8 32 the 4th day onwards.
9 38 d) Plot the original data and each set of forecasts on
10 40 the same graph. Which forecast has the better
11 37 ability to respond quickly to changes?
12 32