Case Study: Bank Account Forecast

a.

Figure 1: The table of Moving Average with n=2, MAD and MSE

Figure 2: The graph of actual and forecast by Moving Average with n=2
Figure 1 and figure 2 show the actual and forecast of the number of new accounts by using the Moving Average
method with n=2. The best value for n is 2 as its Mean Absolute Deviation (MAD) and Mean Square Error (MSE)
illustrate the fewest errors which are 1.085 and 2.444.
 Figure 3: The table of Linear Trend

Figure 4: The graph of actual and forecast by Linear Trend

Figure 3 and figure 4 show the actual and forecast of the number of new accounts by using the Linear Trend
method.

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 Figure 5: The table of Linear Regression

Figure 6: The graph of actual and forecast by Linear Regression

Figure 5 and figure 6 show the actual and forecast of the number of new accounts by using the Linear Regression
method. Using the y=0.2653x + 2.2683 to find the forecast.

Figure 7: The table of the results of Forecast Accuracy Metrics

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Based on the above figure 7, we can see that the Moving Average method with n=2 has the lowest error on all
three error indicators of all the methods used. This means that the Moving Average method has the highest
accuracy. It is the most appropriate method that fits best the bank's strategic plan. For this result, the bank
operation managers should use the Moving Average method as a 5-year forecast for the number of new accounts
opened.

b.
Yes, it can exclude a portion of the data for the analysis. Forecasting the number of new accounts opened in 5
years requires real data from the economy. The bank operation manager could have used only the last 10 years
(2010-2020) for his forecasts. That is because the original data (1991 to 2009) were too old, and the economy
then was very different from the economy in 2010-2020. For instance, GDP per capita and employment rates have
been increasing over the past 10 years. In addition, the global financial crisis of 2008-2009 has caused the
economy very unstable. In this case, it is necessary to discard the beginning years, which are not a true
representation of the banks' open demand.

Most forecasting models do not work well for very long time series. When the number of observations is small
(2010-2020), the models tend to work well as an approximation of any process that generated the data. In
contrast, when we use too many observations (1991-2020), these sufficient data cause the differences between the
real process and the model to start to become more apparent.

Therefore, the bank operation manager can discard the earlier data and exclude unstable economic data with the
time series method to obtain a more reliable 5-year forecast for the number of new bank accounts opened.

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c.

Figure 8/9: R-squared of No. of new account forecast (GDP Per Capita)
/(Employment Rate)
The variable GDP Per Capita can better estimate the number of new bank account than the variable employment
rate. Figure 2 shows that the R-squared is 0.871(87.1%). This shows how well this model predicted or forecasts
the future number of new bank account. It suggested that the explanatory variables in the model predicted 87.1%
of the variation in the dependent variable (the number of new bank account). However, figure 3 shows that the R-
squared is only 0.324, which means it only predicts 32.4% of the variation in the dependent variable (the number
of new bank account).

Figure 10: No. of new account forecast (GDP Per Capita)

In addition, figure 4 shows that a good scatter diagram. The dependent variable(y) is the number of new bank
account, and the independent variable(x) is GDP Per Capita. And the association between x and y is the line of
best fit, the data points are closer and no major outliers. Hence, GDP Per Capita could be used as forecast of the
number of new bank account more stability.

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 Figure 11: No. of new account forecast (Employment rate)

However, figure 5 shows that the association between x (the employment rate) and y (the number of new bank
account) is not the line of best fit. The data points are not closed and there are some outliers. Hence, the
employment rate could not be used to forecast the number of new bank account effectively

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Appendixes

Figure12: The table of Moving Average with n=2 to n=9

Figure13: The table of MAD of Moving Average with n=2 to n=9

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 Figure14: The table of MSE of Moving Average with n=2 to n=9

Figure15: The table of MAD, MSE and MAPE of Linear Trend and Linear Regression