A planning tool that helps management in its

attempts to cope with the uncertainty of the

future, replying mainly on data from the past
and present analysis of trends. Forecasting
starts with certain assumptions based on the
management’s experience, knowledge, and
judgement.
A time series is a sequence of observations
which are ordered in time. Inherent in the
collection of data taken over time is some from
or random variation. There exist methods for
reducing of canceling the effect due to random
variation. Widely used techniques are
“smoothing”. These techniques, when properly
applied, reveals more clearly the underlying
trends. It is two types
Moving Average
Exponential Smoothing
Moving Average :
Moving averages rank among the most popular techniques
for the processing of time series. They are used to filter
random ‘white noise’ from the data, to make the time series
smoother or even to emphasize certain informational
components contained in the series.

Exponential Smoothing:
This is a very popular scheme to produce a smoothed Time series.
Whereas in Moving Average the past observations are weighted
equally, Exponential Smoothing assigns exponentially decreasing
weights as the observation get older. In other words, recent
observations are given relatively more weight in forecasting than the
older observation.

An exponentially weighted moving average with a smoothing

constant a, corresponds roughly to a simple moving average of
length ( i.e., period) n, where a and n are related by:
a=2/(n+1) or n=(2-a)/a
Statistical techniques for detecting significant changes
in data by ignoring the fluctuations irrelevant to the
purpose at hand. In exponential smoothing (as
opposed to in moving averages smoothing) older
data is given progressively-less relative weight
(importance) whereas newer data is given
progressively-greater weight. Also called averaging,
it is employed in making short-term forecasts. The
‘wait-and-see’ attitude to changes around them is
the intuitive way people employ exponential
smoothing in their daily living.