FORCASTING

2012
Question 3
A gastro pub offering food and drink to its customers was opened near the
university campus
of Morecaster ten years ago. The pub has been successful and annual sales have
generally
been increasing. The owner is considering further expansion, but is concerned
that the
population growth that took place in the local area during the first five years or
so of his
business has now ceased and so that may affect future business prospects. His
trade is
seasonal with typically the winter months much busier than the summer months
because more
students are in residence over the winter months and they account for a
significant proportion
of his business. The pubs annual turnover for the last ten years (in 000s
adjusted for any
inflationary factors) is shown in the following table.
Year

Summer 12.24
15.00 13.62
26.48 22.52
26.90
Winter 11.40 15.78
51.48 52.18 53.18
Total
69.40

23.64
77.96

22.38

17.62 21.48
28.84 33.78

30.78 36.00
74.70 80.08

46.46

10

26.18

27.22

40.10 42.18
55.26

66.28

a) Use five-point moving averages to forecast annual turnover for the next two
years. Then
use the average percentage method to forecast Summer and Winter sales during
that
period.

(60% of marks)
b) Is using a five-point moving average a good basis for annual forecasts in this
case? Justify
your answer and if appropriate suggest how the forecasts might be improved.
(20% of marks)
c) Is using the average percentage method a good basis for forecasting Summer
and Winter
sales? Justify your answer and if appropriate suggest how the forecasts might be
improved.
(20% of marks)

2010
Question 3

A small hotel with 10 rooms is trying to build up its business since its opening at
the start of 2005. The following table shows the number of room nights booked
in the hotel per quarter for the past four years.

Year

Q1

Q2

Q3

Q4

Annual
Total

2005

132

306

643

254

1335

2006

198

323

622

276

1419

2007

230

359

698

355

1642

2008

253

410

771

384

1818

a) Using a method based on a two-point moving average for the annual total, forecast the
room nights booked for the four quarters of 2009.
(60% marks)

- question continues over

b) If the following figures are the actual room nights booked for the four quarters of 2009,
determine whether your forecasts are biased and find the mean square error.
Q1: 277

Q2: 423

Q3: 843

Q4: 410

(20% marks)

c) The owner is planning to continue to use the same method for estimating the number of
room nights that will be booked per quarter in 2010. What problem can you see with this
process and would you attempt to overcome it?

(20% marks)

2009
Question 3

A company manufactures and distributes a type of fertiliser to garden

centres. The demand for the fertiliser over the last five weeks is shown in
the table below:

Week
Demand (tonnes)

36.2

37.5

34.9

32.0

30.3

The company wishes to make forecasts of the demand for the fertiliser for
the next 2 weeks.

(a)

Determine the forecasts of demand for weeks 6 and 7 using a three

point moving average with extrapolation of the trend.
(20% of marks)

(b)

Use Holts method with values of 0.2 for both smoothing constants and
initial trend of -1.0 to forecast demand for weeks 6 and 7.

(30% of marks)

(c)

When using Holts method, what is the general effect of the values
used for the smoothing constants? In a short time series, the forecasts
will also be sensitive to the value used for the initial trend; explain why
the value chosen for the initial trend is less important for a long time
series.
(20% of marks)

(d)

Compare the accuracy of the forecasts produced in (a) and (b) for months 6 and 7
on the basis of Root Mean Square error if the actual demands for the fertiliser are
30.5 tonnes in Month 6 and 28.2 tonnes in Month 7.

(10% of marks)

(e)

Discuss briefly what is meant by an outlier in a time series and how

you would deal with outliers in the data when producing forecasts.
(20% of marks)