1

A Simple Moving Average Example

Moving Average Forecast =
n
n

periods previous in demand

Where n is the number of periods in the moving average
Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7.
Month Demand Calculation Forecast
1 1500
2 2200
3 2700
4 4200
2133
3
2700 2200 1500

+ + 2133
5 700
! 5400
7
Bakery Gingerbread Man Sales
0
1000
2000
3000
4000
5000
!000
7000
000
"000
1 2 3 4 5 ! 7
eriod
S
a
l
e
s
#emand
Forecast
2
A !eighted Moving Average Example
Weighted Moving Average Forecast =

$eights
% period in &demand % period for &$eight n n
Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7, weighting the past three months as follows: last month 3, two months ago 2, three
months ago 3
eriod !eight
'ast Month 3
($o Months Ago 2
(hree Months Ago 1
)um of Weights
Month Demand Calculation Forecast
1 1500
2 2200
3 2700
4 4200
2333
!
% 3 2700 & % 2 2200 & % 1 1500 &

+ + 2333
5 700
! 5400
7
3
Bakery Gingrbread Man Sales
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1 2 3 4 5 6 7
Period
Series1
Series2
An Exponential Smoothing Example
*+ponentia, )moothing Forecast F
t
= F
t-1
. &A
t-1
/ F
t-1
%
Where F
t
= 0e$ Forecast
F
t-1
= 1revious Forecast
= )moothing 2onstant3 &0 1%
A
t-1
= 1revious 1eriod4s Actua, #emand
Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7, sing a smoothing constant of !.". The forecast for month # is #$!! nits.
Month Demand Calculation Forecast
1 1500 1500
2 2200 1500 . 054&1500 / 1500% 1500
3 2700 1500 . 054&2200 / 1500% 170
4 4200
5 700
! 5400
7
4
Bakery Gingerbread Man Sales
0
1000
2000
3000
4000
5000
!000
7000
000
"000
1 2 3 4 5 ! 7
eriod
S
a
l
e
s
#emand
Forecast
A Mean Absolute Deviation Example
MA# =
n

errors forecast
Example: %alclate the M&' for the (ale of sed in the Exponential )moothing Example.
Month Demand Forecast Error " Error "
1 1500 1500 1500 / 1500 = 0 0
2 2200 1500 2200 / 1500 = 700 700
3 2700 170
4 4200 214
5 700 2"!"
! 5400 4"01
#otal$
MAD$
A Mean S%uared Error Example
5
M)* =
( )
n

2
errors forecast
Example: %alclate the M&' for the (ale of sed in the Exponential )moothing Example.
Month Demand Forecast Error Error
&
1 1500 1500 1500 / 1500 = 0 0
2 2200 1500 2200 / 1500 = 700 4"0000
3 2700 170
4 4200 214
5 700 2"!"
! 5400 4"01
#otal$
MSE$
An Exponential Smoothing !ith #rend Ad'ustment Example
Forecast 6nc,uding (rend F
t
= &A
t-1
% . &1 - %&F
t-1
. (
t-1
%
(rend (
t
= &F
t
/ F
t-1
% . &1 - %(
t-1
Where F
t
= *+ponentia,,7 smoothed forecast for period t
(
t
= *+ponentia,,7 smoothed trend for period t
A
t
= Actua, demand for period t
= )moothing constant for the average &0 1%
= )moothing constant for the trend &0 1%
Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7, sing a smoothing constant for the a(erage of !.", and a smoothing constant for the
trend of !.2. The forecast for month # is #$!! nits and the trend for month # is 2!! nits.
Month Demand Forecast #rend F(#
1 1500 1500 200 1700
2 2200 054&1500% . 05!&1700%
= 1!20
052&1!20 / 1500% . 05&200%
= 14
104
3 2700
4 4200
5 700
6
! 5400
7
Bakery Gingerbread Man Sales
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1 2 3 4 5 6 7
Per i od
Demand
Forecast
Trend
FIT
)east S%uares #rend ro'ection Example
b+ a 78 + =
Where
78
= computed va,ue of variab,e to be predicted &ie dependant variab,e%
a = 7-a+is intercept
b = s,ope of regression ,ine
+ = independent variab,e
We can determine a and b $ith the e9uations3

=
2 2
+ +
7 + - +7
b
n
n
+ b - 7 a =
Example: The demand for Gingerbread Men is shown in the table. Forecast demand for
period 7 b* fitting a single line trend to the data.
Month *x+ Demand *y+ x
&
xy
1 1500 1 &1%&1500% = 1500
2 2200 4 &2%&2200% = 4400
3 2700
4 4200
5 700
7
! 5400
+ = 7 = +
2
= +7 =
= =

n
+
+ = =

n
7
7

=
2 2
+ +
7 + - +7
b
n
n
=
+ b - 7 a =
=
(hus: our trend e9uation is3
78
= . +
(o ca,cu,ate the forecast for month + = 7: $e have3
78
=
Seasonal Forecast Example
Average Month,7 #emand =
months 12
#emand Annua, Average

)easona, 6nde+ =
#emand Month,7 Average
#emand Annua, Average
Example: The demand for gingerbread men o(er the past three *ears is shown in the table. +f
we expect the total *earl* demand in 2!!2 to be "$,!!! nits, what will be or forecasted
monthl* demands in 2!!2,
Month ,--- &... &.., Average Annual Demand
1 1100 1300 1500 &1100 . 1300 . 1500% ; 3 = 1300
2 100 2000 2200
3 2300 2500 2700
4 300 4000 4200
5 4500 4700 4"00
! 5000 5200 5400
7 5500 5700 5"00
400 5000 5200
8
" 3000 3200 3400
10 2200 2400 2!00
11 1500 1700 1"00
12 1200 1400 1!00
Average Month,7 #emand =
)easona, 6nde+ for <anuar7 = 1300 ; =
Forecast for <anuar7 2002 =
12
45000
=
/egression Analysis Example
b+ a 78 + =

=
2 2
+ +
7 + - +7
b
n
n
+ b - 7 a =
Example: -e thin. that there ma* be a relationship between par. attendance and nmber of
gingerbread men sold. 'ata for the first six months are shown in the table. Forecast the
nmber of gingerbread men that will be sold in month 7 if monthl* par. attendance is forecast
as 2$!!! people.
Month Attendance *x+
*0...+
Sales *y+ x
&
xy
1 1500 !4 &%&1500% = 12000
2 12 2200
3 14 2700
4 1 4200
5 1" 700
! 22 5400
+ = 7 = +
2
= +7 =

9
= =

n
+
+ = =

n
7
7

=
2 2
+ +
7 + - +7
b
n
n
=
+ b - 7 a =
=
(hus: our regression e9uation is3
78
= . +
(o ca,cu,ate the forecast for month 7: $e have3
78
=
Standard Error o1 Estimate Example
2
+7 b - 7 a 7
)
2
+ 7:

=

n
Example: %ompte the )tandard Error of the Estimate for or regression anal*sis example
2
+7 b - 7 a 7
)
2
+ 7:

=

n
=
Correlation Coe11icient Example
( ) [ ] ( ) [ ]
2
2
2
2
7 7 + +
+7
r

=
n n
* x n
Example: %ompte the %orrelation %oefficient of the data in or regression anal*sis example