MGT 2070 Assignment #2 Solutions 4.

.1 Registration numbers for an accounting seminar over the past 10 weeks are shown below: a) Starting with week 2 and ending with week 11, forecast registrations using the nave forecasting method. Nave Forecast Ft = At-1 ie F2 = A1 = 22. Carrying this down the table through to week 11 gives: Week Registrations Forecast (3 marks) b) Starting with week 3 and ending with week 11, forecast registration using a two-week moving average. Moving Average Forecast Ft = 1 22 2 21 22 3 25 21 4 27 25 5 35 27 6 29 35 7 33 29 8 37 33 9 41 37 10 37 41 11 37

n A1 + A2 22 + 21 ie F3 = = = 21.5. Carrying this down the table through to week 11 gives: 2 2 Week Registrations Forecast (3 marks) c) Starting with week 5 and ending with week 11, forecast registrations using a four-week moving average. Moving Average Forecast Ft = 1 22 2 21 3 25 21.5 4 27 23 5 35 26 6 29 31 7 33 32 8 37 31 9 41 35 10 37 39 11 39

previous n registrations

n A + A2 + A3 + A4 22 + 21 + 25 + 27 ie F5 = 1 = = 23.75. Carrying this down the table through to 4 4 week 11 gives: Week Registrations Forecast 1 22 2 21 3 25 4 27 5 35 23.75 6 29 27 7 33 29 8 37 31 9 41 33.5 10 37 35 11 37

previous n registrations

(3 marks) d) Plot the original data and the three forecasts on the same graph. Which forecast smoothes the data the most? Which forecast responds to change the best?

45 40 35 30 25 20 15 10 5 0 1 3 5 7 9 11 Week

Registration Nave 2-Week Moving 4-Week Moving

We see from the graph that the four-week moving average forecast smoothes the data the most, while the nave forecast responds to change the best. (1 mark) 4.5 Given the following data, use exponential smoothing ( = 0.2) to develop a demand forecast. Assume the forecast for the initial period is 5. Exponential Smoothing Forecast Ft = Ft-1 + (At-1 Ft-1) ie F2 = F1 + (A1 F1) = 5 + 0.2 (7 5) = 5.4. Carrying this through to week 7 gives: Period Demand 1 7 2 9 3 5 4 9 5 13 6 8 7 (10 marks) Exponentially Smoothed Forecast 5 5 + 0.2 (7 5) = 5.4 5.4 + 0.2 (9 5.4) = 6.12 6.12 + 0.2 (5 6.12) = 5.90 5.90 + 0.2 (9 5.90) = 6.52 6.52 + 0.2 (13 6.52) = 7.82 7.82 + 0.2 (8 7.82) = 7.86

Registrations

4.7 Calculate (a) MAD and (b) MSE for the following forecast versus actual sales figures: a) MAD =

forecast errors
n Forecast 100 110 120 130 Error -5 -2 3 0 | Error | 5 2 3 0 = 10

Actual 95 108 123 130

MAD = 10 / 4 = 2.5 (5 marks) b) MSE =

( forecast errors)
n

Actual 95 108 123 130

Forecast 100 110 120 130

Error -5 -2 3 0

Error2 25 4 9 0 = 38

MSE = 38 / 4 = 9.5 (5 marks) 4.19 Consulting income at Dr. Thomas W. Jones Associates for the period February to July has been as follows. Use trend-adjusted exponential smoothing to forecast Augusts income. Assume that the initial forecast for February is $65,000 and the initial trend adjustment is 0. The smoothing constants selected are = .1 and = .2. Forecast Ft = (At-1) + (1 - )(Ft-1 + Tt-1), Trend Tt = (Ft Ft-1) + (1 - )T t-1
Month Feb Mar Apr May Jun Jul Aug Inc 70.0 68.5 64.8 71.7 71.3 72.8 Forecast 65.0 0.1(70)+0.9(65) = 65.5 0.1(68.5)+0.9(65.6) = 65.89 0.1(64.8)+0.9(66.05) = 65.93 0.1(71.7)+0.9(66.06) = 66.62 0.1(71.3)+0.9(66.87) = 67.31 0.1(72.8)+0.9(67.64) = 68.16 Trend 0 0.2(65.565)+(0.8)0 = 0.1 0.2(65.89-65.5)+(0.8)0.1 = 0.16 0.2(65.92-65.89)+(0.8)0.16 = 0.13 0.2(66.62-65.93)+(0.8)0.13 = 0.25 0.2(67.31-66.62)+(0.8)0.25 = 0.33 0.2(68.16-67.31)+(0.8)0.33 = 0.43 FIT 65+0 = 65 65.5+0.1=65.6 65.89+0.16=66.05 65.93+0.13=66.06 66.62+0.25=66.87 67.31+0.33=67.64 68.16+0.43=68.60

(10 marks)

4.29 The director of the Riley County, Kansas, library system would like to forecast evening patron usage for next week. Below are the data for the past 4 weeks: a) Calculate a seasonal index for each day of the week. Day Monday Tuesday Wednesday Thursday Friday Saturday Week 1 210 178 250 215 160 180 Week 2 215 180 250 213 165 185 Week 3 220 176 260 220 175 190 Week 4 225 178 260 225 176 190 Avg 217.5 178 255 218.3 169 186.3 = 1224.1

Average Daily Demand = Average Demand / 6 Days = 1224.1 / 6 = 204 Seasonal Index = Average Demand / Average Daily Demand Seasonal Index for Monday Seasonal Index for Tuesday Seasonal Index for Wednesday Seasonal Index for Thursday Seasonal Index for Friday Seasonal Index for Saturday (5 marks) b) If the trend equation for this problem is y = 201.74 + 0.18x, what is the forecast for each day of week 5? Round your forecast to the nearest whole number. Note that each day is one period along the x-axis. So in week five, Monday is x = 25, Tuesday is x = 26, etc. Day Monday Tuesday Wednesday Thursday Friday x 2 5 2 6 2 7 2 8 2 9 y 201.74 + 0.18(25) = 206.24 201.74 + 0.18(26) = 206.42 201.74 + 0.18(27) = 206.6 201.74 + 0.18(28) = 206.78 201.74 + 0.18(29) = 206.96 Seasonal Index 1.066 0.873 1.25 1.07 0.828 Forecast (Rounded) 206.24 (1.066) = 220 206.42 (0.873) = 180 206.6 (1.25) = 258 206.78 (1.07) = 221 206.96 (0.828) = 171 = 217.5 / 204 = 178 / 204 = 255 / 204 = 218.3 / 204 = 169 / 204 = 186.3 / 204 = 1.066 = 0.873 = 1.25 = 1.07 = 0.828 = 0.913

Saturday (5 marks)

3 0

201.74 + 0.18(30) = 207.14

0.913

207.14 (0.913) = 189

4.41 Summer-month bus and subway ridership in Washington, DC, is believed to be tied heavily to the number of tourists visiting the city. During the past 12 years, the following data have been obtained: a) Plot these data and decide if a linear model is reasonable.
5 4.5 4 3.5 Ridership 3 2.5 2 1.5 1 0.5 0 0 10 Tourists 20 30

As the number of tourists (x-axis) increases, the ridership appears to increase: a linear model is reasonable. (1 mark) b) Develop a regression relationship. Year 1 2 3 4 5 6 7 8 9 10 11 12 Tourists (x) 7 2 6 4 14 15 16 12 14 20 15 7 Ridership (y) 1.5 1.0 1.3 1.5 2.5 2.7 2.4 2.0 2.7 4.4 3.4 1.7 x2 49 4 36 16 196 225 256 144 196 400 225 49 y2 2.25 1.00 1.69 2.25 6.25 7.29 5.76 4.00 7.29 19.36 11.56 2.89 xy 10.5 2.0 7.8 6.0 35.0 40.5 38.4 24.0 37.8 88.0 51.0 11.9

x = 132 x = x / n = 132 / 12 = 11 y = y / n = 27.1 / 12 = 2.26 b=

y = 27.1

x2 = 1796

y2 = 71.59

xy = 352.9

xy - nxy = 352.9 12(11)(2.26) = 54.58 = 0.159 1796 12(11) 344 x nx

2 2 2

a = y - bx = 2.26 - 0.159(11) = 0.511 the relationship is y = 0.511 + 0.159x (2 marks) c) What is expected ridership if 10 million tourists visit the city in a year? Y = 0.511 + 0.159(10) = 2.101 or 2,101,000 persons. (2 marks) d) Explain the predicted ridership if there are no tourists at all. If there are no tourists at all, the model predicts a ridership of 0.511 or 511,000 persons. One would not place much confidence in this forecast, however, because the number of tourists is outside the range of data used to develop the model. (1 mark) e) What is the standard error of the estimate? S y,x =

a y - b xy n2

71.59 0.511(27.1) 0.159(352.9) 1.63 = = 0.163 = 0.404 12 2 10

(2 marks) f) What is the models correlation coefficient and coefficient of determination? r= =

[n x

n xy x y
2 2

( x ) n y 2 ( y )

][

] [12(1796) (132) ][12(71.59) (27.1) ]

2 2

12(352.9) (132)(27.1)

657.6 657.6 = = 0.917 514637.76 717.38

r2 = 0.9172 = 0.840 (2 marks) A.17 Chris Suit is administrator for Lowell Hospital. She is trying to determine whether to build a large wing on the existing hospital, a small wing, or no wing at all. If the population of Lowell continues to grow, a large wing could return $150,000 to the hospital each year. If a small wing

were built, it would return $60,000 to the hospital each year of the population continues to grow. If the population of Lowell remains the same, the hospital would encounter a loss of $85,000 with a large wing and a loss of $45,000 with a small wing. Unfortunately, Suit does not have any information about the future population of Lowell. a) Construct a decision tree.

Grow 150 Build Large Build Small Do Not Build Stable -85 Grow 60 Stable -45 Grow 0 Stable 0

b) Construct a decision table. Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 Stable -85 -45 0

c) Assuming that each state of nature has the same likelihood, determine the best alternative. Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 P 0.5 0.5 0.5 Stable -85 -45 0 P 0.5 0.5 0.5 EMV 150(0.5) 85(0.5) = $32.5 60(0.5) 45(0.5) = $7.5 $0

We would make the decision which results in the largest EMV in this case, we would build the large wing. d) If the likelihood of growth is 0.6 and that of remaining the same is 0.4 and the decision criterion is expected monetary value, which decision should Suit make? Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 P 0.6 0.6 0.6 Stable -85 -45 0 P 0.4 0.4 0.4 EMV 150(0.6) 85(0.4) = $56 60(0.6) 45(0.4) = $18 $0

We would make the decision which results in the largest EMV in this case, we would build the large wing.