Professional Documents
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Forecasting
McGraw-Hill/Irwin
Forecast
Forecast a statement about the future
Instructor Slides
3-2
Instructor Slides
3-3
data
5. Make the forecast
6. Monitor the forecast
Instructor Slides
3-6
monitored
Error = Actual Forecast
If errors fall beyond acceptable bounds,
MAD
MSE
Forecast t
Actual
Forecast
t
t
n 1
Actual
MAPE
Forecast t
n Actual t
100
Actual
(A)
Forecast
(F)
(A-F)
Error
|Error|
Error2
107
110
-3
125
121
16
115
112
118
120
-2
108
109
-1
Sum
13
39
n=5
n-1 = 4
MAD
MSE
AVG(A)
114.6
= 2.6
MAPE=MAD / AVG(A)
Forecasting Approaches
Qualitative Forecasting
Qualitative techniques permit the inclusion of soft information
such as:
Human factors
Personal opinions
Hunches
These factors are difficult, or impossible, to quantify
Quantitative Forecasting
Quantitative techniques involve either the projection of
Judgmental Forecasts
Forecasts that use subjective inputs such
Time-Series Forecasts
Forecasts that project patterns identified
Time-Series Behaviors
Trend
Seasonality
Cycles
Irregular variations
Random variation
Exhibit 9.4
Exhibit 9.5a
Exhibit 9.5b
Seasonality
Short-term, fairly regular variations related to the
Random Variation
Residual variation that remains after all other behaviors
have been accounted for
Irregular variation
Due to unusual circumstances that do not reflect typical
behavior
Labor strike
Weather event
data
They can handle step changes or gradual
changes in the level of a series
Techniques
Moving average
Weighted moving average
Exponential smoothing
Moving Average
Technique that averages a number of the
Ft MA t i 1
n
where
Ft Forecast for time period t
MA t n period moving average
At 1 Actual value in period t 1
n Number of periods in the moving average
Demand
Forecast
Forecast
(3-week)
(5-week)
800
1400
1000
1500
(1000+1400+800)/3 =1067
1500
(1500+1000+1400)/3 = 1300
1300
(1500+1500+1000)/3 = 1333
1800
(1300+1500+1500)/3 = 1433
(1300+1500+1500+1000+1400)/5 =1340
1700
(1800+1300+1500)/3 = 1533
(1800+1300+1500+1500+1000)/5 =1420
1300
1600
(1700+1800+1300+1500+1500)/5 =1560
10
1700
1600
(1300+1700+1800+1300+1500)/5 =1520
11
1700
1567
(1700+1300+1700+1800+1300)/5 =1560
Moving Average
As new data become available, the
Exhibit 9.6
Exhibit 9.7
Exponential Smoothing
A weighted averaging method that is
=Smoothing constant
At 1 Actual demand or sales from the previous period
Exponential Smoothing
Saturday Hotel Occupancy ( =0.5)
Period
t
1
2
3
4
5
6
Occupancy
Forecast
At
Ft
79
--84
79.00
83
79+.5(84-79)=81.50 or 82
81
81.5+.5(83-81.5)=82.25 or 82
98
82.25+.5(81-82.25)=81.63 or 82
100
81.63+.5(98-81.63)= 89.81 or 90
Forecast
Error
|At - Ft|
5
1
1
16
10
MAD =33/5= 6.6
Linear Trend
A simple data plot can reveal the
n ty t y
n t t
2
y b t
a
n
or y bt
where
n Number of periods
y Value of the time series
Figure 3-9
3-32
Sales (y)
t2
ty
150
150
157
314
162
486
166
16
664
177
25
885
t= 15
y= 812
t2=55
(ty)=2499
n ty t y
n t t
2
5(2499) 15(812)
5(55) 225
12495 12180
6.3
275 225
y b t 812-6.3(15)
a
=
143.5
n
5
y 143.5 6.3t
Multiplicative
Instructor Slides
3-36
Models of Seasonality
Instructor Slides
3-37
Season
Overall
Day
Week 1
Week 2
Week 3
Average
Average
SA Index
Tues
67
60
64
63.667
71.571
0.8896
Wed
75
73
76
74.667
71.571
1.0432
Thurs
82
85
87
84.667
71.571
1.1830
Fri
98
99
96
97.667
71.571
1.3646
Sat
90
86
88
88.000
71.571
1.2295
Sun
36
40
44
40.000
71.571
0.5589
Mon
55
52
50
Overall
Avg
52.333
71.571
0.7312
71.571
7.0000
Seasonal Relatives
Seasonal relatives
The seasonal percentage used in the multiplicative
seasonally adjusted forecasting model
Using seasonal relatives
To deseasonalize data
Done in order to get a clearer picture of the
nonseasonal components of the data series
Divide each data point by its seasonal relative
To incorporate seasonality in a forecast
Obtain trend estimates for desired periods using a
trend equation
Add seasonality by multiplying these trend
estimates by the corresponding seasonal
relative
Q8.
Period
Quarter
Sales
158.4
153.0
110.0
146.3
192.0
187.0
132.0
173.8
Quarter
Relative
Deseasonalized
sales
1.20
132.0
1.10
139.1
0.75
146.7
0.95
154.0
1.20
160.0
1.10
170.0
0.75
176.0
0.95
182.9