Simple Methods and

Procedures Used in
Forecasting
The project prepared by : Sven Gingelmaier
Michael Richter
Under direction of the Maria Jadamus-Hacura

What Is Forecasting?
Prediction of future events and conditions are
called forecasts, and the act of making such
prediction is called forecasting.
Sales will be $200
(WordNet Dictionary )
million!

Forecasting
Forecasting Methods
Methods Used
Used in
in
the
the Project
Project ::
Linear trend model
Exponential smoothing models :
- Browns linear exponential smoothing
- Browns quadratic smoothing model
- Holts method double exponential smoothing
- Nonlinear smoothing model

Time
Time Series
Series Analysis
Analysis
Time series, denoted by { Yt : t N} , is a
sequence of observations on particular
variables.
Decomposition of time series data (classical
decomposition):

Trend
Seasonal Trend
Cyclical Movements
Irregular Components

The data that has been analyzed in the

Project are :
- number of born Babys in Germany
- analyzed period starts from 1990 to
2007
- the Data was taken from the Website
of the German Census Office

Linear Trend Analysis

Linear Trend
950000
900000

y = -10405t + 860988
R2 = 0,8497

850000
800000
750000
700000
650000
600000
1

empircal data

10

11

12

13

14

15

Linear (empircal data)

16

17

18

19

Linear Trend Analysis

We applied Ordinary Least Squares
Method ( OLS ) to estimate coefficients
and the measures of fit of the linear
trend model .
We utilized Excel regression option for
calculation . ( Tools / Data Analysis /
Regression )

SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

0,9217700
0,8496599
0,8402637
24085,46
18

V=

3,16%

ANOVA
df
Regression
Residual
Total

Intercept
t

SS
MS
52456625447 52456625447
9281751953 580109497,1
61738377400

F
Significance F
90,42538644 5,50673E-08

Coefficients Standard Error

t Stat
860988,4379 11844,32006 72,69209493
-10405,26832 1094,228689 -9,509226385

P-value
Lower 95%
1,35626E-21 835879,6012
5,50673E-08 -12724,9295

1
16
17

Linear Trend Analysis

Linear trend equation:

)
Y = 860988, 43 10405, 27 * t
)
Y

- Estimated or predicted value of born babys

Interpretation of slope coefficient :

Here b1 = 10405,27 tells us that the average
value of born babys decreases by 10405
on average in each year .

Measures of fit
-The Coefficient of Determination R2
-Standard Error of Estimate Su
- Coefficient of random variation V

Coefficient of
Determination, R2
The coefficient of determination is the
portion of the total variation in the
dependent variable that is explained by
variation in the independent variable
In our example R2 =0,8496.
It means that 84 % of the total variation of
the number of born babys is explained by
the trend model .

Standard Error of
Estimate
Su = 24085,46

It is the standard deviation around

the trend line of the predicted
values of Y.

Coefficient of random
variation
V = 3,16%
The value of standard error is around
3% of the mean of the number of born
babys .

Predicted Value
We estimate the value of born babys in the year
2008 by extrapolation trend function for t = 19 :
)
Y = 860988, 43 10405, 27 *19 = 663288,34

The real number of born babys in Germany in the year 2008 is

674728 .
The ex post error of estimation is equal to :
674728 663288,34 = 11439,7
This error is less than estimated from the regression model .
( Su = 24085,5 )

Exponential Smoothing
Methods
Exponential smoothing has become
very popular as a forecasting method
for a wide variety of time series data.
The predicted value in this method is a
weighted average of past observations .
Weights decay geometrically as we go
backwards in time .

Brown's Linear (double)

Exponential Smoothing
950.000
900.000
850.000
800.000
750.000

forecast

700.000
650.000
600.000
1

actual

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
smoothed data

Brown's quadratic
(triple) smoothing model
950000
900000
850000
800000
750000
700000
650000
600000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

data

forecasts

Holt's method double

exponential smoothing
950000
900000

forecast

850000
800000
750000
700000
650000
600000
1

7
9
actual

11
13
15
smoothed data

17

19

21

23

Nonlinear smoothing
model
950.000
forecast

900.000
850.000
800.000
750.000
700.000
650.000
600.000
1

7
actual

11

13

15

smoothed data

17

19

21

23

Summary of Results

MAE

Forecasted
value
for
2008

ex post
error

absolute
value of
ex post
error

Brown's Linear (double) Exponential

Smoothing

19932

676589

-1861

1861

Brown's quadratic ( triple) smoothing

model

29244

698999

-24271

24271

Holt's method double exponential

smoothing

17831

672391

2337

2337

Nonlinear smoothing
model

16726

677927

-3199

3199

Real value of born babys in the

year 2008

674728

Summary of Results
( graphically )
705000
700000
forecasted value

695000

real value
690000
685000
680000
675000
670000
665000
660000
655000
Brown's Linear
Brown's quadratic
(double) Exponential (ie, triple) smoothing
Smoothing
model

Holt's method
double exponential
smoothing

Nonlinear smoothing
model

General Comparison
(graphically)
710000
Forecasted value for 2008
700000

real value

690000
35000

680000
30000

MAE

25000

absolute value of ex post

error

670000
660000
20000

650000

15000

640000

10000

Brown's Linear
(double)
Exponential
Smoothing

Brown's
quadratic (ie,
triple) smoothing
model

Holt's method
double
exponential
smoothing

Nonlinear
smoothing model

Trend model
5000
0
Brown's
Linear
(double)
Exponential
Smoothing

Brown's
Holt's method
quadratic (ie,
double
triple)
exponential
smoothing
smoothing
model

Nonlinear
smoothing
model

Trend model

THANK YOU FOR

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