PROBLEM 5

“FORECASTING”
REPORT BY: LIMOCON & MELENDEZ
 1. THE PROBLEM
The River is a literary magazine published by the English Department at Tech. It
has a 70-year history and enjoys an excellent reputation for providing a literary
outlet for aspiring Appalachian writers. However, its sales, mostly through
independent bookstores and college libraries, have never been very large.
Several years ago, the magazine’s advisory board decided to create a Web site
and post the bi-monthly issues online for free access. Due to poor economic
conditions and state budget cuts, Tech recently withdrew funding for the
magazine, and in order to make up for this financial loss, the magazine’s staff has
decided to try to sell advertising (especially to local and regional business) on
the magazine’s Web site. In order to sell advertising, the magazine’s staff would
like to be able to provide potential advertisers with a forecast of the number of
visits the Web site might receive in future months. Following is the number of
monthly visits the Web site has received for the 24 month that it has existed :
Month Web Visits Month Web Visits

1 537 13 822
2 375 14 677
3 419 15 1031
4 276 16 657
5 445 17 983
6 521 18 774
7 670 19 1210
8 561 20 811
9 705 21 1137
10 619 22 763
11 768 23 1225
12 645 24 941
2
IDE
• Develop a three-month moving average
NTI
• Develop a three-month weighted moving
FIE average(with the most recent month weighted
D by 0.50, the next closest month by 0.30, and
PR the final month by 0.20)
OB • Which one is the most accurate forecast
LE model and the forecast for month 25.
MS
 3. THE MODE L & F ORMUL A

• Moving Average

• Weighted Moving
Average
Forecast Accuracy • MAPD(Mean Absolute Percentage Deviation)

• MAD(Mean Absolute Deviation)

• Cumulative Error
•  Average Error

• MSE(Mean Squared Error)

=
 4. THE • The Table
GIVEN • Most recent month weighted by
0.50, the next closest month by
VARIABLE 0.30, and the final month by 0.20
(to compute weighted moving
S average)
5. THE SOLUTION
Month Web 3-Month Moving Average:
Visits MA
1 537
2 375
3 419
4 276
5 445
6 521
7 670
8 561
  537+375+ 419
9
10
705
619
Month 4:𝑀𝐴 3= 3
=443.6666667
11 768
  375+ 419+ 276
Month 5:𝑀𝐴 3= =356.6666667
12 645
3
 Month Web 3-Month Month Web 3-Month
Visits MA Visits MA
Month 25: 1 537 - 13 822 677.3333333
14 677 745
2 375 -
15 1031 714.6666667
3 419 - 16 657 843.3333333
4 276 443.6666667 17 983 788.3333333
5 445 18 774 890.3333333
356.6666667
19 1210 804.6666667
6 521 380
20 811 989
7 670 411 21 1137 931.6666667
8 561 542.3333333 22 763 1052.666667
9 705 581
23 1225 903.6666667
10 619 24 941 1041.666667
645.3333333
25 976.3333333
11 768 628.3333333
12 645 697.3333333
 Moving Average
1200

1000

800

Actual
Value

600

Forecast

400

200

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Data Point
Month Web 3-Month Weighted Moving Average
Visits AMA
1 537
2 375
3 419
4 276
5 445
6 521
7 670
8 561 Month 4: 𝑊𝑀𝐴
  3 =537 ( .20 ) +375 ( .30 ) + 419 ( .50 ) =429.4
9 705
10 619
11 768 Month 5: 𝑊𝑀𝐴
  3 =375 ( .20 ) + 419 ( .30 ) +276 ( .50 ) =338.7

12 645
 Month Web 3-Month Month Web 3-Month
Visits AMA Visits AMA
Month 25:
1 537 - 13 822 676.7
  2 375 - 14 677 758.1
3 419 - 15 1031 714.1
16 657 883
4 276 429.4
17 983 773.2
5 445 338.7
18 774 894.8
6 521 389.1
19 1210 813.3
7 670 449.2 20 811 1033.8
8 561 580.3 21 1137 923.3
9 705 585.7 22 763 1053.8
10 619 654.8 23 1225 884.8
11 768 633.2 24 941 1068.8
12 645 710.7 25 990.6
 Weighted Moving Average
1400

1200

1000

800

Actual

600
Forecast

400

200

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
 Month Web Visits 3-Month Error
MA () ||
1 537 - - - -
1 537 - - - -
2 375 - - - -
2 375 - - - -
3 419 - - - -
FORECAST 3
4
4
419
276
276
-

443.6666667
-

-167.6666667
-

167.6666667
-

28112.11111

ACCURACY
443.6666667 -167.6666667 167.6666667 28112.11111
5 445
5 445 356.6666667 88.33333333 88.33333333 7802.777778
356.6666667 88.33333333 88.33333333 7802.777778

FOR MOVING 6
6
7
512
512
670
380
380
132
132
132
132
17424
17424

AVERAGE
7 670 411 259 259 67081
411 259 259 67081
8 561
8 561 542.3333333 18.66666667 18.66666667 348.4444444
542.3333333 18.66666667 18.66666667 348.4444444
9 705
9 705 581 124 124 15376
581 124 124 15376
10 619
10 619 645.3333333 -26.33333333 26.33333333 693.4444444
645.3333333 -26.33333333 26.33333333 693.4444444
11 768
11 768 628.3333333 139.6666667 139.6666667 19506.77778
628.3333333 139.6666667 139.6666667 19506.77778
12 645
12 645 697.3333333 -52.33333333 52.33333333 2738.777778
697.3333333 -52.33333333 52.33333333 2738.777778
Month Web Visits 3-Month Error
MA () ||
MAD:
13 822
677.3333333 144.6666667 144.6666667 20928.44444
14 677
745 -68 -68 4624
15 1031
714.6666667 316.3333333 316.3333333 100066.7778
 = = 168.3174603
16 657
843.3333333 -186.3333333 186.3333333 34720.11111
17 983
788.3333333 194.6666667 194.6666667 37895.11111
18 774
890.3333333 -116.3333333 116.3333333 13533.44444 MAPD:
19 1210
804.6666667 405.3333333 405.3333333 164295.1111
20 811
989 -178 178 31684
21 1137
931.6666667 205.3333333 205.3333333 42161.77778
22 763  =
1052.666667 -289.6666667 289.6666667 83906.77778
23 1225
903.6666667 321.3333333 321.3333333 103255.1111
24 941 = 0.2177591589 or 21.77591589%
1041.666667 -100.6666667 100.6666667 10133.77778
Total
16232 1164 3534.666667 806287.7778
Cumulative Error: Average Error:

= = 55.42857143
 

= 1164
MSE:
 
= = 38394.65609
 Month Web Visits 3-Month Error
AMA () ||

1 537 - - - -

2 375 - - - -
FORECAST 3 419 - - - -
ACCURACY 4 276 429.4 -153.4 153.4 23531.56
FOR WEIGHTED 5 445 338.7 106.3 106.3 11299.69

MOVING 6 512 389.1 131.9 131.9 17397.61

AVERAGE 7 670 449.2 220.8 220.8 48752.64

8 561 580.3 -19.3 19.3 372.49
9 705 585.7 119.3 119.3 14232.49
10 619 654.8 -35.8 35.8 1281.64
11 768 633.2 134.8 134.8 18171.04
12 645 710.7 -65.7 65.7 4316.49
Month Web 3-Month Error
Visits AMA () ||
MAD:
13 822 676.7 145.3 145.3 21112.09
14 677 758.1 -81.1 81.1 6577.21
15 1031 714.1 316.9 316.9 100425.61
16 657  = = 175.2
883 -226 226 51076
17 983 773.2 209.8 209.8 44016.04
18 774 894.8 -120.8 120.8 14592.64
19 1210 MAPD:
813.3 396.7 396.7 157370.89
20 811 1033.8 -222.8 222.8 49639.84
21 1137 923.3 213.7 213.7 45667.69
22 763 1053.8 -290.8 290.8 84564.64
 =
23 1225 884.8 340.2 340.2 115736.04
24 941 1068.8 -127.8 127.8 16332.84
Total
= 0.226663381 or 22.6663381%
16232 992.2 3679.2 846467.18
Cumulative Error: Average Error:

= = 47.24761905
 

= 992.2
MSE:
 
= = 40307.96095
6. THE ANSWER
MAD MAPD Cumulativ Average MSE
e Error Error
Moving
168.3174603 0.2177591589 or 1164 55.42857143 38394.65609
Average 21.77591589%

Weighted 47.24761905
175.2 0.226663381 992.2 40307.96095
Moving or 22.6663381%
Average
• The table shows that the MAD, MAPD, and MSE of Moving
average is lower than the weighted moving average, thus the
Moving Average Forecast is more accurate.
• The cumulative error and average error shows that the
Moving average has a relatively large positive value than the
weighted moving average . It indicates that the forecast is
probably consistently lower than the actual demand or is
biased low.
••  Inconclusion, the most accurate model is the
Moving Average Forecast and thus the forecast
for the 25th month is
7. INTERPRETATION & RECOMMENDATION
For this problem, we recommend to use the moving average forecast
since the forecast accuracy indicates that it has lower MAD, MAPD,
and MSE. The cumulative and average error also indicates that it has
low bias. We also recommend to always measure the forecast error since
it is not probable that a forecast will be completely accurate. Forecast
will always deviate from the actual demand. They are many forecasting
methods to choose from. We should choose the best for the sake of the
company. When we become managers, we always trying to predict the
future, to make decisions that will lead us to success. We should
remember that there is no totally accurate forecast. But it can provide
reliable guidelines for decision making.