Workshop 6: Sketching

sales (£000's)
100 actual sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

To sketch how exponential smoothing performs

on a time series, the easiest thing is to use alpha
= 0.5 as the smoothing factor.
1
 Workshop 6: Sketching week 2
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

We start off predicting sales of 10 (£000) for

week 1. As it turns out to be correct, we carry on
with predicting 10 for week 2.
2
 Workshop 6: Sketching week 3
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

As predicting sales of 10 (£000) is also correct for

week 2, we carry and predicting 10 for week 3.

3
 Workshop 6: Sketching week 3
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

In week 3, our prediction of 10 is wrong and the

red arrowed line shows our error (of 90 – 10 = 80).

4
 Workshop 6: Sketching week 3
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

We take half this error as our correction term

because we have chosen alpha to be 0.5, i.e. we
add on half the error term to our time 3 forecast.
5
 Workshop 6: Sketching week 4
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

This corresponds to our week 4 prediction being

the mid-point of our red error line, i.e. 50.

6
 Workshop 6: Sketching week 4
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

By chance our week 4 prediction of 50 happens

to be correct.

7
 Workshop 6: Sketching week 5
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

As predicting 50 for week 4 was correct, we carry

on and predict 50 for week 5.

8
 Workshop 6: Sketching week 5
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

The arrowed red line shows the error for week 5.

9
 Workshop 6: Sketching week 6
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

Adding half this red error line to the week 5

forecast is the same as taking the mid-point of
the red line (i.e. 30) as our week 6 prediction.
10
 Workshop 6: Sketching week 6
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

Taking the mid-point of the error line between our

week 6 prediction of 30 and our actual (observed)
value of 70 gives a value of 50.
11
 Workshop 6: Sketching week 7
sales (£000's)
100 actual sales predicted sales
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Week number

Hence we predict 50 for week 7 (and go on to

predict 70 for week 8).

12