Exercise: Chapter-5: Forecasting

5.15
(a)
(b)

Year
Demand
3-year moving
3-year weighted

1
4

2
6

3
4

4
5
6
7
8
9
10
11 Forecast
5.0 10.0 8.0 7.0 9.0 12.0 14.0 15.0
4.67 5.0 6.33 7.67 8.33 8.0 9.33 11.67 13.67
4.5
5.0 7.25 7.75 8.0 8.25 10.0 12.25 14.0

16
14
12
10
8
6

Demand
3-year moving
3-year weighted

4
2
0
1
(c)

10

11 Forecast

The forecasts are about the same, but the weighted moving average is a little better. For the 3-year
moving average forecast the MAD = 2.54. For the 3-year weighted moving average forecast the MAD
= 2.31. See problem 12.

5.16 Year
Demand
Exp. Smoothing

1
4
5

2
3
4
5
6
7
8
9
10
11 Forecast
6.0 4.0 5.0 10.0 8.0 7.0 9.0 12.0 14.0 15.0
4.70 5.09 4.76 4.83 6.38 6.87 6.91 7.54 8.87 10.41 11.79

16
14
12
10
8
6
4

Demand
Exp. Smoothing

2
0
1
5.17

6
1.67
0.75
1.62

7
0.67
0.8
0.13

10

11 Forecast

Error |Actual Forecast|

Year
3-year moving
3-year weighted
Exp. smoothing

4
5
0.33 5.0
0.5
5.0
0.237 5.17

8
0.67
1.0
2.09

9
4.0
3.75
4.46

10
4.67
4.0
5.13

11
3.33
2.75
4.59

MAD
2.542
2.313
2.927

The 3-year weighted average (MAD=2.313) is slightly better than the 3-year moving average (MAD=2.542),
and quite a bit better than exponential smoothing. Note that the MAD for exponential smoothing should be
calculated for the same range as the moving averages (periods 4-11) for a fair comparison. Thus, even though
we can calculate a forecast with exponential smoothing and an error for periods 1-3, that should not be used
to calculate the MAD, since MAD is based only on periods 4-11 with the other two forecasts.
5.19

Year
1996
1997
1998
1999
2000

Time Period X
1
2
3
4
5

Sales Y
450
495
518
563
584
2610

X2
1
4
9
16
25
55

XY
450
990
1554
2252
2920
8166

X 3 , Y 522
Y a bX
b

XY nXY 8166 53522 336

33.6
X 2 nX 2
55 59
10

a Y bX 22 33.63 4212
.
y 4212
. 33.6 x
y 4212
. 33.6 6 622.8

Year
1996
1997
1998
1999
2000
2001

Sales
450
495
518
563
584

Forecast Trend
454.8
488.4
522.0
555.6
589.2
622.8

Absolute Deviation
4.8
6.6
4.0
7.4
5.2

28
MAD 5.6
5.20

Year
1996
1997
1998
1999
2000
2001

Sales
450
495
518
563
584

Forecast Exponential Smoothing 0.6 Absolute Deviation

410.0
40.0
410 0.6( 450 410) 434.0
61.0
434 0.6( 495 434) 470.6
47.4
470.6 0.6(518 470.6) 499.0
64.0
499 0.6(563 499) 537.4
46.6
537.4 0.6(584 537.4) 565.6
259
MAD 51.8

Year
1996
1997
1998
1999
2000

Sales
450
495
518
563
584

Forecast Exponential Smoothing 0.9 Absolute Deviation

410.0
40.0
410 0.9( 450 410) 446.0
49.0
446 0.9( 495 446) 490.1
27.9
490.1 0.9(518 490.1) 515.2
47.8
515.2 0.9(563 515.2) 558.2
25.8

558.2 0.9(584 558.2) 581.4

2001

190.5
MAD 38.1
(Refer to Solved Problem 4.1)

MAD 0.3 74.6

MAD 0.6 518
.
MAD 0.9 381
.
Because it gives the lowest MAD, the smoothing constant of 0.9 gives the most accurate forecast.

MAD 0.3 74.6

5.21

MAD3 year moving average 60.4

MADtrend 5.6
One would use the trend (regression) forecast because it has the lowest MAD.

5.25 (a)

3-month moving average:

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

Sales
11
14
16
10
15
17
11
14
17
12
14
16
11

Three-Month
Moving Average

Absolute Deviation

(11 14 16) / 3 13.67

14 16 10 3 1333
.

3.67
1.67
3.33
3.00
0.33
3.00
2.00
0.33
1.67
3.00

(16 10 15) / 3 13.67

10 15 17 3 14.00
(15 17 11) / 3 14.33
(17 11 14) / 3 14.00
(11 14 17) / 3 14.00
(14 17 12) / 3 14.33
(17 12 14) / 3 14.33
(12 14 16) / 3 14.00
14 16 11 3 1367
.

22.00
MAD 2.20
(b)

3-month weighted moving average

Month
January
February
March
April
May
June
July
August

Sales
11
14
16
10
15
17
11
14

Three- Month Moving

Average Weights = 1, 2, 3

1 11 2 14 3 16 6 14.50
1 14 2 16 3 10 6 12.67
1 16 2 10 3 15 6 1350
.
1 10 2 15 3 17 6 1517
.
1 15 2 17 3 11 6 1367
.

Absolute Deviation

4.50
2.33
3.50
4.17
0.33

September
October
November
December
January
February

17
12
14
16
11

1 17 2 11 3 14 6 1350
.
1 11 2 14 3 17 6 1500
.
1 14 2 17 3 12 6 14.00
1 17 2 12 3 14 6 1383
.
1 12 2 14 3 16 6 14.67
1 14 2 16 3 11 6 1317
.

3.50
3.00
0.00
2.17
3.67

27.17
MAD 2.72
(c)
(d)

5.26 (a)

Based on a Mean Absolute Deviation criterion, the 3-month moving average with MAD 2.2 is to be
preferred over the 3-month weighted moving average with MAD 2.72 .
Other factors that might be included in a more complex model are interest rates and cycle or seasonal
factors.

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

(b)
(c)

Actual
Miles
17
21
19
23
18
16
20
18
22
20
15
22

Error

RSFE

|Error|

Cum.
MAD

0.00
4.00
1.20
4.96
1.03
2.83
1.74
0.61
3.51
0.81
4.35
3.52

4.00
5.20
10.16
9.13
6.30
8.04
7.43
10.94
11.75
7.40
10.92

0.00
4.00
5.20
10.16
11.19
14.02
15.76
16.37
19.88
20.69
25.04
28.56

0
2
1.73
2.54
2.24
2.34
2.25
2.05
2.21
2.07
2.28
2.38

Forecast
17.00
17.00
17.80
18.04
19.03
18.83
18.26
18.61
18.49
19.19
19.35
18.48

Tracking
Signal
2.0
3.0
4.0
4.1
2.7
3.6
3.6
5.0
5.7
3.2
4.6

The MAD 2856

. 12 238
.
The RSFE and tracking signals appear to be consistently positive, and at week 10, the tracking signal
exceeds 5 MADs.