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CH 16
CH 16
Slide 2
Quantitative Approaches to Forecasting
Slide 3
Time Series Methods
Slide 4
Components of a Time Series
Slide 5
Measures of Forecast Accuracy
Slide 6
Smoothing Methods
Slide 7
Smoothing Methods
Slide 8
Smoothing Methods
Slide 9
Smoothing Methods
Slide 10
Smoothing Methods
Exponential Smoothing
• Using exponential smoothing, the forecast for the
next period is equal to the forecast for the current
period plus a proportion () of the forecast error
in the current period.
• Using exponential smoothing, the forecast is
calculated by:
[the actual value for the current period] +
(1- )[the forecasted value for the current period],
where the smoothing constant, , is a number
between 0 and 1.
Slide 11
Trend Projection
Slide 12
Trend Projection
b1 = ntYt - tYt b0 = Y - b 1t
nt2 - (t)2
where: Yt = observed value of the time series at time
period t
Y = average of the observed values for Yt
t = average time period for the n observations
Slide 13
Example: Roberts’s Drugs
Slide 14
Example: Robert’s Drugs
Exponential Smoothing
To evaluate the two smoothing constants,
determine how the forecasted values would compare
with the actual historical values in each case.
Let: Yt = actual sales in week t
Ft = forecasted sales in week t
F1 = Y1 = 110
For other weeks, Ft+1 = .1Yt + .9Ft
Slide 15
Example: Robert’s Drugs
Exponential Smoothing
For = .1, 1 - = .9
F1 = 110
F2 = .1Y1 + .9F1 = .1(110) + .9(110) = 110
F3 = .1Y2 + .9F2 = .1(115) + .9(110) = 110.5
F4 = .1Y3 + .9F3 = .1(125) + .9(110.5) = 111.95
F5 = .1Y4 + .9F4 = .1(120) + .9(111.95) = 112.76
F6 = .1Y5 + .9F5 = .1(125) + .9(112.76) = 113.98
F7 = .1Y6 + .9F6 = .1(120) + .9(113.98) = 114.58
F8 = .1Y7 + .9F7 = .1(130) + .9(114.58) = 116.12
F9 = .1Y8 + .9F8 = .1(115) + .9(116.12) = 116.01
F10= .1Y9 + .9F9 = .1(110) + .9(116.01) = 115.41
Slide 16
Example: Robert’s Drugs
Exponential Smoothing
For = .8, 1 - = .2
F1 = 110
F2 = .8(110) + .2(110) = 110
F3 = .8(115) + .2(110) = 114
F4 = .8(125) + .2(114) = 122.80
F5 = .8(120) + .2(122.80) = 120.56
F6 = .8(125) + .2(120.56) = 124.11
F7 = .8(120) + .2(124.11) = 120.82
F8 = .8(130) + .2(120.82) = 128.16
F9 = .8(115) + .2(128.16) = 117.63
F10= .8(110) + .2(117.63) = 111.53
Slide 17
Example: Robert’s Drugs
Slide 18
Example: Robert’s Drugs
= .1 = .8
Week Yt Ft (Yt - Ft)2 Ft (Yt - Ft)2
1 110
2 115 110.00 25.00 110.00 25.00
3 125 110.50 210.25 114.00 121.00
4 120 111.95 64.80 122.80 7.84
5 125 112.76 149.94 120.56 19.71
6 120 113.98 36.25 124.11 16.91
7 130 114.58 237.73 120.82 84.23
8 115 116.12 1.26 128.16 173.30
9 110 116.01 36.12 117.63 58.26
10 130 115.41 212.87 111.53 341.27
Sum 974.22 Sum 847.52
MSE Sum/9 108.25 Sum/9 94.17
Slide 19
Example: Auger’s Plumbing Service
Slide 20
Example: Auger’s Plumbing Service
Trend Projection
(month) t Yt tYt t2
(Mar.) 1 353 353 1
(Apr.) 2 387 774 4
(May) 3 342 1026 9
(June) 4 374 1496 16
(July) 5 396 1980 25
(Aug.) 6 409 2454 36
(Sep.) 7 399 2793 49
(Oct.) 8 412 3296 64
(Nov.) 9 408 3672 81
Sum 45 3480 17844 285
Slide 21
Example: Auger’s Plumbing Service
Slide 22
Example: Auger’s Plumbing Service
Slide 24
Example: Terry’s Tie Shop
Slide 27
Example: Terry’s Tie Shop
Slide 28
Example: Terry’s Tie Shop
Slide 29
Example: Terry’s Tie Shop
Slide 30
Example: Terry’s Tie Shop
Slide 31
Qualitative Approaches to Forecasting
Delphi Approach
• A panel of experts, each of whom is physically
separated from the others and is anonymous, is
asked to respond to a sequential series of
questionnaires.
• After each questionnaire, the responses are tabulated
and the information and opinions of the entire group
are made known to each of the other panel members
so that they may revise their previous forecast
response.
• The process continues until some degree of
consensus is achieved.
Slide 32
Qualitative Approaches to Forecasting
Scenario Writing
• Scenario writing consists of developing a conceptual
scenario of the future based on a well defined set of
assumptions.
• After several different scenarios have been
developed, the decision maker determines which is
most likely to occur in the future and makes
decisions accordingly.
Slide 33
Qualitative Approaches to Forecasting
Slide 34
The End of Chapter 16
Slide 35