FORECASTING

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Summary for all equations

Nave Forecasting:
= 1
Where: Ft: the Forecasted demand for a required period.
At-1: the Actual demand for the previous period.
t: is a Time period.
Moving Average Forecasting:
=

Where: Ft: the Forecasted demand for a required period.

At: the Actual demand.
n: is the number of periods in moving average.
Weighted Moving Average Forecasting:
=

Where: Ft: the Forecasted demand for a required period.

At: the Actual demand.
wt: the weight of period.
Exponential Smoothing Forecasting:
= 1 + (1 1 )
Where: Ft: the Forecasted demand for a required period.
At-1: the Actual demand for previous period.
Ft-1: the Forecasted demand for a previous period.
: the Exponential Smoothing constant.

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Summary for all equations

Exponential Smoothing with Trend Adjustment Forecasting:
= 1 + ( 1 1 )
= +
Where: Ft: the Forecasted demand for a required period = 1 + (1 1 ).
At-1: the Actual demand for previous period.
Tt: the Trend adjustment.
Tt-1: the Trend adjustment for a previous period.
: Trend Adjustment Exponential Smoothing constant.
FITt: Trend Adjustment Exponential Smoothing Forecasted demand.
Trend Projection (Least square regression) Forecasting:

= +
Where: y: the Forecasted demand for a given period of x time.

2 2

, =

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Summary for all equations

Seasonal Forecasting:
=
The accuracy of a Forecasting method:
=

||

Where: MAD: the Mean Absolute Deviation.

e: the Error of Forecasting of each period e = A-F.
n: the number of periods.
2
=
1
Where: MAD: the Mean Squared Error.
e: the Error of Forecasting of each period e = A-F.
n: the number of periods.

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Sheet (1) Model Answers

Given: Shown given table for industrial vacuum cleaners.

Required: a) Ffeb using moving average with n=3.

b) Ffeb using weighted moving average with n=3 and wt1=3, wt2=2, wt3=3.
c) The accuracy of each method.

Solution:
a) The forecasting of next Feb using moving average

11 + 16 + 14
=
=
= 13.67

3
b) The forecasting of next Feb using weighted moving average

11 3 + 16 2 + 14 1
=
=
= 13.17

3+2+1
c) Evaluating the accuracy of each method using MAD
month

sales (A)

Mov Avg (F)

Move Avg (e)

Wt Mov Avg (F)

Wt Mov Avg (e)

jan
feb
mar
apr
may
jun
jul
aug
sep
oct
nov
dec
jan

11
14
16
10
15
17
11
14
17
12
14
16
11

---------------13.67
13.33
13.67
14.00
14.33
14.00
14.00
14.33
14.33
14.00

----------------3.67
1.67
3.33
-3.00
-0.33
3.00
-2.00
-0.33
1.67
-3.00
|e| = 22.00

---------------14.50
12.67
13.50
15.17
13.67
13.50
15.00
14.00
13.83
14.67

----------------4.50
2.33
3.50
-4.17
0.33
3.50
-3.00
0.00
2.17
-3.67
|e| = 27.17

|| 22
=
= 2.2

10
|| 27.17
=
=
= 2.71

10

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Given: Shown given table for air conditioners sales.

Required: a) Forecasting from 1999 to 2003 using exponential smoothing of =0.3.

b) Comparing the accuracy of forecasting using =0.6 and =0.9.

Solution:
a) The forecasting using =0.3:

= 1 + (1 1 ) 1999 = 410 + 0.3(450 410) = 422

2000 = 422 + 0.3(495 422) = 443.9

year

sales

Forecasting using =0.3

1998
1999
2000
2001
2002
2003

450
495
518
563
584
?

410
422
443.90
466.13
495.19
521.83

b) The forecasting using =0.6 and =0.9 :

1999 = 410 + 0.6(450 410) = 434 = 0.6

1999 = 410 + 0.9(450 410) = 446 = 0.9
year

sales

=0.6 Forecasting

=0.9 Forecasting

1998
1999
2000
2001
2002
2003

450
495
518
563
584
?

410
434
470.60
499.04
537.42
565.37

40
61
47.40
63.96
46.58
-----|e| = 258.94

410
446
490.10
515.21
558.22
581.42

40
49
27.90
47.79
25.78
----|e| = 190.47

|| 258.94
=
= 51.8

5
|| 190.74
=
=
= 38.1

=0.6 =
=0.9

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Given: Shown given table for demand that depend on the Advertising.

Required: a) Forecasting equation using least square method.

b) The forecasting if Adv = $ 9000.

Solution:
a) The forecasting equation:
Adv (x) thousand $

Sales (y) thousand

xy

x2

3
4
7
6
8
5
x = 33

3
6
7
5
10
8
y = 39

9
24
49
30
80
40
xy = 232

9
16
49
36
64
25
2
x = 199

=
=

33
6

= 5.5 , =

39
6

= 6.5

232 6 5.5 6.5

=
=1
2 2
199 6 5.52
= = 6.5 1 5.5 = 1

The forecasting equation will be:

= + = 1 +

b) The forecasting of Adv = $9000:

= 1 + = 1 + 9 = 10

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Given: Forecasting Equation y=10+3x , seasonal indices of quarters I , II, III, IV are 0.8, 1, 1.3, 0.9

Required: a) Forecasting for each quarter in 2005.

b) Seasonal forecast of theses quarters.

Solution:
a) The forecasting of each quarter in 2005:

For year 2005: Quarter I

x=8
Quarter II x = 9
Quarter III x = 10
Quarter IV x = 11

y = 10 + 83 = 34
y = 10 + 93 = 37
y = 10 + 103 = 40
y = 10 + 113 = 43

b) The Seasonal forecasting of each quarter in 2005:

yseasonal = y seasonal index

For year 2005: Quarter I

yseasonal = 34 0.8 = 27.2

Quarter II yseasonal = 37 1.0 = 37

Quarter III yseasonal = 40 1.3 = 52
Quarter IV yseasonal = 43 0.9 = 38.7

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Summary for the chapter

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Solved Examples

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