Activity 2

MBA 2.5 & 3.5 Operations Management

Objective: To learn summarizing forecasting error and differentiate between various techniques.

Please carefully read the following questions and State your answer accordingly.

Question1:

For the provided excel file, calculate forecasted value for 12th month using exponential smoothing with α value 0.49 or
49% and exponential smoothing with trend adjustment with the same α value and β value equal to 0.49 or 49 %.
Further, the trend value is assumed to be 6 and the value of Ft-1 is assumed to be 80.

a- Forecasted value of 12th month Exponential smoothing …………………………………………………...

b- Forecasted value of 12th month Exponential smoothing with trend adjustment ……………………………
c- Plot the forecasted values of both methods and compare it with the actual values. Which method provides
more accurate plot relative to actual values.
values…………………………………………………………………………………………………………

Question 2:

Suppose the actual value of the 12th month came out to be 190. Calculate the MAD, MSE and MAPE values of each
forecasted method.

a- Why is the MSE value higher? State your answer

Ans: MSE value is high because we have squared the Absolute Error.

b- Is it proper to use MSE with there are larger deviations between Actual and Forecasted value?
Ans: No, we cannot use MSE for large deviations between Actual and Forecasted value, because it will give
us large value and it will become more difficult to conclude.

c- State the values of MAD, MSE and MAPE for Exponential smoothing;

Ans: MAD 16.59266502

MSE 361.4258615
MAPE 11.27421954
d- State the values of MAD, MSE and MAPE for Exponential smoothing with trend adjustment;

Ans: MAD 11.52352389

MSE 176.4657501
MAPE 8.761643199

e- Which technique seems to be more appropriate for this data set? Exponential smoothing or Exponential
smoothing with trend adjustment? State reason of your answer.
Ans: Exponential smoothing with trend adjustment is more appropriate for this data because the error is
showed through percentage which is more easily understandable and we can interpret easily in percentage that
how much percent deviation is between Actual and Forecasted.