FORECASTING- WEIGHTED MOVING AVERAGES

QUESTION 1

- Calculate weighted moving averages

- Compare error measure using MAD
WEEK SALES
1 39
2 44
3 40
4 45
5 38
6 43
7 39
8

a) Forecast sales using 4-week weighted moving averages with weights 0.4,0.3,0.2 and 0.1
WEEK SALES 4WMA
1 39 -
2 44 -
3 40 -
4 45 -
5 38 42.7
6 43 41.1
7 39 41.6
8 40.6

Weights = 0.4+0.3+0.2+0.1 = 1 , 𝑊𝑀𝐴𝑛 = ∑𝑛𝑖−1 𝑊𝑖 𝐷𝑖

𝐹5 = 𝑊𝑀𝐴4 = (0.4)(45) + (0.3)(40) + (0.2)(44) + (0.1)(39)

= 42.7

𝐹6 = 𝑊𝑀𝐴4 = (0.4)(38) + (0.3)(45) + (0.2)(40) + (0.1)(44)

= 41.1

𝐹7 = 𝑊𝑀𝐴4 = (0.4)(43) + (0.3)(38) + (0.2)(45) + (0.1)(40)

= 41.6

𝐹8 = 𝑊𝑀𝐴4 = (0.4)(39) + (0.3)(43) + (0.2)(38) + (0.1)(45)

= 40.6
b) Forecast sales using 2-week weighted moving averages with weights 3 and 2
WEEK SALES 2WMA
1 39 -
2 44 -
3 40 42
4 45 41.6
5 38 43
6 43 40.8
7 39 41
8 40

Weights = 3+2 = 5 , 𝑊𝑀𝐴𝑛 = ∑𝑛𝑖−1 𝑊𝑖 𝐷𝑖

(3)(44) + (2)(39)
𝐹3 = 𝑊𝑀𝐴2 =
5

= 42

(3)(40) + (2)(44)
𝐹4 = 𝑊𝑀𝐴2 =
5

= 41.6

(3)(45) + (2)(40)
𝐹5 = 𝑊𝑀𝐴2 =
5

= 43

(3)(38) + (2)(45)
𝐹6 = 𝑊𝑀𝐴2 =
5

= 40.8

(3)(43) + (2)(38)
𝐹7 = 𝑊𝑀𝐴2 =
5

= 41

(3)(39) + (2)(43)
𝐹8 = 𝑊𝑀𝐴2 =
5

= 40
c) Compare forecast errors

WEEK SALES 4WMA |𝐷𝑡 − 𝐹𝑡 |

1 39 - -
2 44 - -
3 40 - -
4 45 - -
5 38 42.7 4.7
6 43 41.1 1.9
7 39 41.6 2.6
9.2

∑|𝐷𝑡 −𝐹𝑡 |
MAD =
𝑛
9.2
= 3
= 3.07
WEEK SALES 2WMA |𝐷𝑡 − 𝐹𝑡 |
1 39 - -
2 44 - -
3 40 42 2
4 45 41.6 3.4
5 38 43 5
6 43 40.8 2.2
7 39 41 2
14.6

∑|𝐷𝑡 −𝐹𝑡 |
MAD = 𝑛
14.6
=
5
= 2.92

Method MAD
4-week weighted average 3.07
2-week weighted average 2.92

Since MAD is the error measure, smaller MAD produce a better smoothing of the data. Therefore,
using MAD, the 2-week weighted average method produced a better forecast.
QUESTION 2

Use quantitative forecast methods for the data shown below.

Period 1 2 3 4 5 6 7
Observation 24 34 36 37 41 44 45

a) Compute for:

I. Naïve Method
Period 1 2 3 4 5 6 7 8
Observation 24 34 36 37 41 44 45
Forecast - 24 34 36 37 41 44 45

II. 3-period moving average

Period 1 2 3 4 5 6 7 8
Observation 24 34 36 37 41 44 45
Forecast - - - 31.33 35.67 38 40.67 43.33

∑𝑛𝑖=1 𝐷𝑖
𝑀𝐴𝑛 =
𝑛
36 + 34 + 24
𝐹4 = 𝑀𝐴3 =
3
= 31.33
37 + 36 + 34
𝐹5 = 𝑀𝐴3 =
3
= 35.67
41 + 37 + 36
𝐹6 = 𝑀𝐴3 =
3
= 38
44 + 41 + 37
𝐹7 = 𝑀𝐴3 =
3
= 40.67
45 + 44 + 41
𝐹8 = 𝑀𝐴3 =
3
= 43.33
III. 4-period moving average
Period 1 2 3 4 5 6 7 8
Observation 24 34 36 37 41 44 45
Forecast - - - - 32.75 37 39.5 41.75

∑𝑛𝑖=1 𝐷𝑖
𝑀𝐴𝑛 =
𝑛
37 + 36 + 34 + 24
𝐹5 = 𝑀𝐴4 =
4
= 32.75
41 + 37 + 36 + 34
𝐹6 = 𝑀𝐴4 =
4
= 37
44 + 41 + 37 + 36
𝐹7 = 𝑀𝐴4 =
4
= 39.5
45 + 44 + 41 + 37
𝐹8 = 𝑀𝐴3 =
4
= 41.75
FORECASTING- EXPONENTIAL SMOOTHING

QUESTION 3
PERIOD ACTUAL
1 42
2 40
3 43
4 40
5 41
6 39
7 46
8 44
9 45
10 38
11 40
12

a) Consider exponential smoothing forecasts using smoothing constants 0.1 and 0.4
PERIOD ACTUAL Forecast, 𝐹𝑡+1 (𝛼 = 0.1)
1 42 -
2 40 42
3 43 41.8
4 40 41.92
5 41 41.73
6 39 41.66
7 46 41.39
8 44 41.85
9 45 42.07
10 38 42.36
11 40 41.92
12 41.73

𝐹𝑡+1 = 𝛼𝐷𝑡 + (1 − 𝛼)𝐹𝑡

𝐹1+1 = 𝛼𝐷1 + (1 − 𝛼)𝐹1

𝐹2 = (0.1)(42) + (1 − 0.1)(42)

= 42

𝐹2+1 = 𝛼𝐷2 + (1 − 𝛼)𝐹2

𝐹3 = (0.1)(40) + (1 − 0.1)(42)

= 41.8

𝐹3+1 = 𝛼𝐷3 + (1 − 𝛼)𝐹3

𝐹4 = (0.1)(43) + (1 − 0.1)(41.8)
 = 41.92

𝐹4+1 = 𝛼𝐷4 + (1 − 𝛼)𝐹4

𝐹5 = (0.1)(40) + (1 − 0.1)(41.92)

= 41.73

𝐹5+1 = 𝛼𝐷5 + (1 − 𝛼)𝐹5

𝐹6 = (0.1)(41) + (1 − 0.1)(41.73)

= 41.66

𝐹6+1 = 𝛼𝐷6 + (1 − 𝛼)𝐹6

𝐹7 = (0.1)(39) + (1 − 0.1)(41.66)

= 41.39

𝐹7+1 = 𝛼𝐷7 + (1 − 𝛼)𝐹7

𝐹8 = (0.1)(46) + (1 − 0.1)(41.39)

= 41.85

𝐹8+1 = 𝛼𝐷8 + (1 − 𝛼)𝐹8

𝐹9 = (0.1)(44) + (1 − 0.1)(41.85)

= 42.07

𝐹9+1 = 𝛼𝐷9 + (1 − 𝛼)𝐹9

𝐹10 = (0.1)(45) + (1 − 0.1)(42.07)

= 42.36

𝐹10+1 = 𝛼𝐷10 + (1 − 𝛼)𝐹10

𝐹11 = (0.1)(38) + (1 − 0.1)(42.36)

= 41.92

𝐹11+1 = 𝛼𝐷11 + (1 − 𝛼)𝐹11

𝐹12 = (0.1)(40) + (1 − 0.1)(41.92)

= 41.73
 PERIOD ACTUAL Forecast, 𝐹𝑡+1 (𝛼 = 0.4)
1 42 -
2 40 42
3 43 41.2
4 40 41.92
5 41 41.15
6 39 41.09
7 46 40.25
8 44 43.15
9 45 43.49
10 38 44.09
11 40 41.65
12 40.99

𝐹𝑡+1 = 𝛼𝐷𝑡 + (1 − 𝛼)𝐹𝑡

𝐹1+1 = 𝛼𝐷1 + (1 − 𝛼)𝐹1

𝐹2 = (0.4)(42) + (1 − 0.4)(42)

= 42

𝐹2+1 = 𝛼𝐷2 + (1 − 𝛼)𝐹2

𝐹3 = (0.4)(40) + (1 − 0.4)(42)

= 41.2

𝐹3+1 = 𝛼𝐷3 + (1 − 𝛼)𝐹3

𝐹4 = (0.4)(43) + (1 − 0.4)(41.2)

= 41.92

𝐹4+1 = 𝛼𝐷4 + (1 − 𝛼)𝐹4

𝐹5 = (0.4)(40) + (1 − 0.4)(41.92)

= 41.15

𝐹5+1 = 𝛼𝐷5 + (1 − 𝛼)𝐹5

𝐹6 = (0.4)(41) + (1 − 0.4)(41.15)

= 41.09

𝐹6+1 = 𝛼𝐷6 + (1 − 𝛼)𝐹6

𝐹7 = (0.4)(39) + (1 − 0.4)(41.09)
 = 40.25

𝐹7+1 = 𝛼𝐷7 + (1 − 𝛼)𝐹7

𝐹8 = (0.4)(46) + (1 − 0.4)(40.25)

= 43.15

𝐹8+1 = 𝛼𝐷8 + (1 − 𝛼)𝐹8

𝐹9 = (0.4)(44) + (1 − 0.4)(43.15)

= 43.49

𝐹9+1 = 𝛼𝐷9 + (1 − 𝛼)𝐹9

𝐹10 = (0.4)(45) + (1 − 0.4)(43.49)

= 44.09

𝐹10+1 = 𝛼𝐷10 + (1 − 𝛼)𝐹10

𝐹11 = (0.4)(38) + (1 − 0.4)(44.09)

= 41.65

𝐹11+1 = 𝛼𝐷11 + (1 − 𝛼)𝐹11

𝐹12 = (0.4)(40) + (1 − 0.4)(41.65)

= 40.99
Exponential Smoothing
PERIOD ACTUAL Forecast, 𝐹𝑡+1 (𝛼 = 0.1) Forecast, 𝐹𝑡+1 (𝛼 = 0.4)
1 42 - -
2 40 42 42
3 43 41.8 41.2
4 40 41.92 41.92
5 41 41.73 41.15
6 39 41.66 41.09
7 46 41.39 40.25
8 44 41.85 43.15
9 45 42.07 43.49
10 38 42.36 44.09
11 40 41.92 41.65
12 41.73 40.99