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C H A P T E R
Forecasting
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
DISCUSSION
QUESTIONS
1.Qualitative models
incorporatesubjectivefactors
into the forecasting model.
Qualitativemodelsareuseful
whereallpreviousvaluesare
weighted with a set of
weights that decline
exponentially.
8.MAD,MSE,andMAPE
are common measures of
forecastaccuracy.Tofindthe
4 assumptionthatthefutureis
a function of the past,
whereasanassociativemodel
incorporates into the model
the variables of factors that
might influence the quantity
beingforecast.
18.Independent variable
(x) is said to explain
variations in the dependent
variable(y).
19.Nearly every industry
has seasonality. The
seasonality must be filtered
when subjective factors are
more accurate forecasting 11.A time series is a out for good mediumrange
important.Whenquantitative
model, forecast with each sequenceofevenlyspaceddata planning (of production and
data are difficult to obtain,
toolforseveralperiodswhere points with the inventory) and performance
qualitative models may be
the demand outcome is four components of trend, evaluation.
appropriate.
known, and calculate MSE, seasonality, cyclical, and 20.There are many
2.Approaches are MAPE, or MAD for each. randomvariation. examples. Demand for raw
qualitative and quantitative. The smaller error indicates 12.When the smoothing materials and component
Qualitative is relatively thebetterforecast. constant,,islarge(closeto partssuchassteelortiresisa
subjective; quantitative uses
9.The Delphi technique 1.0),moreweightisgivento functionofdemandforgoods
numericmodels.
involves: recent data; when is low suchasautomobiles.
3.Shortrange (under 3 (closeto0.0),moreweightis 21.Obviously, as we go
(a)Assembling a group
months), mediumrange (3 giventopastdata. farther into the future, it
of experts in such a
months to becomes more difficult to
mannerastopreclude 13.Seasonalpatternsareof
3years),andlongrange(over makeforecasts,andwemust
directcommunication fixed duration and repeat
3years). diminish our reliance on the
between identifiable regularly. Cycles vary in
4.Thestepsthatshouldbe membersofthegroup length and regularity. forecasts.
used to develop a Seasonal indices allow
(b)Assembling the
forecasting
responses of each generic forecasts to be ETHICAL DILEMMA
systemare: made specific to the month, This exercise, derived from
expert to the
(a)Determine the questions or week,etc.,oftheapplication. an actual situation, deals as
purpose and use of the problemsofinterest 14.Exponential smoothing much with ethics as with
forecast weighs all previous values forecasting. Here are a few
(c)Summarizing these pointstoconsider:
(b)Select the item or responses with a set of weights that
quantities that are to be decline exponentially. It can Noonelikesasystem
(d)Providing each theydontunderstand,
forecasted place a full weight on the
expert with the summary of and most
(c)Determine the time most recent period (with an
allresponses college presidents
horizonoftheforecast alphaof1.0).This,ineffect,
(e)Asking each expert isthenaveapproach,which would feel
(d)Select the type of tostudythesummary placesallitsemphasisonlast uncomfortable with
forecastingmodeltobeused of the responses periodsactualdemand. thisone.Itdoesoffer
(e)Gatherthenecessary andrespondagainto the advantage of
15.Adaptive forecasting
data the questions or depoliticizing the
refers to computer
(f) Validate the problemsofinterest. funds al
monitoring of tracking
forecastingmodel (f) Repeating steps (b) signalsandselfadjustmentif locationifusedwisely
through (e) several a signal passes its present and fairly. But to do
(g)Maketheforecast
timesasnecessaryto limit. so means all parties
(h)Implement and obtain convergence musthaveinputtothe
evaluatetheresults 16.Tracking signals alert process (such as
in responses. If
theuserofaforecastingtool smoothing constants)
5.Any three of: sales convergence has not
to periods in which the andalldataneedtobe
planning, production beenobtainedbythe
forecast was in significant opentoeveryone.
planningandbudgeting,cash end of the fourth
error.
budgeting, analyzing various cycle, the responses The smoothing
operatingplans. at that time should 17.The correlation constants could be
probablybeaccepted coefficient measures the selectedbyanagreed
6.There is no mechanism
and the process degree to which the uponcriteria (suchas
for growth in these models;
terminatedlittle independent and dependent lowestMAD)orcould
they are built exclusively
additional variables move together. A be based on input
from historical demand
convergenceislikely negative value would mean from experts on the
values. Such methods will
if the process is thatasXincreases,Ytends board as well as the
alwayslagtrends.
continued. to fall. The variables move college.
7.Exponentialsmoothingis together, but move in
a weighted moving average 10.A time series model Abuseofthesystem
oppositedirections.
predicts on the basis of the is tied to assigning
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall. 28
CHAPTER 4F O R E C A S T I N G 29
alphas based on what 2.What happens to the 4.Atwhatlevelofalphais No, they are not the
results they yield, graph when alpha equals the mean absolute deviation same values. For example,
rather than what one? (MAD)minimized? aninterceptof57.81witha
alphasmakethemost Theforecastfollowsthe alpha=.16 slopeof9.44yieldsaMAD
sense. samepatternasthedemand of7.17.
4.2(a)No,thedataappeartohavenoconsistentpattern
(seepartdforgraph).
Year 1 2 3 4 5 6 7 8 9 10 11 Forecas
t
Demand 7 9 5 9.0 13.0 8.0 12.0 13.0 9.0 11.0 7.0
(b) 3-year moving 7.0 7.7 9.0 10.0 11.0 11.0 11.3 11.0 9.0
(c) 3-year weighted 6.4 7.8 11.0 9.6 10.9 12.2 10.5 10.6 8.4
Regression is open to (except for the first ACTIVEMODEL4.3: END-OF-CHAPTER
abuseaswell.Models forecast)butisoffsetbyone ExponentialSmoothing
canusemanyyearsof period. This is a nave with
PROBLEMS
data yielding one forecast. TrendAdjustment 374+368+381
4.1(a) 374.33pints
result or few years 3.Generalizewhathappens 1.Scroll through different 3
yielding a to a forecast as alpha values for alpha and beta. (b)
totally different increases. Which smoothing constant
forecast. Selection of Weight
As alpha increases the appears to have the greater Week Pint ed
associative variables forecastismoresensitiveto effectonthegraph? of s Moving
can have a major changesindemand. alpha Use Averag
impact on results as
*ActiveModels4.1,4.2,4.3, d e
well.
and 4.4 appear on our Web August 360Error
Forecasti
site, Week of Pints Forecast 31ng .20 Foreca
Active Model www.pearsonhighered.com/h Septe
Error 389 st 381
Exercises* eizer. August 31 360 360 mber
0 7 0 360 .1
September 7 389 360 29 5.8 =
365.8
ACTIVEMODEL4.1: September 14 410 365.8 44.2 8.84 38.1
374.64
MovingAverages September 21 381 374.64 Septe
6.36 4101.272 375.91368
mber 2 .3
1.What does the graph 14 =
September 28 368 375.912 7.912 1.5824 374.32
looklikewhenn=1?
96 110.
The forecast graph October 5 374 374.3296.3296 .06592 374.264
mirrorsthedatagraphbut Septe 381 36 374
oneperiodlater. mber .6
2.With beta set to zero, 21 =
2.What happens to the find the best alpha and 224.
graph as the number of observetheMAD.Nowfind 4
periods in the moving the best beta. Observe the Septe 368
averageincreases? MAD.Doestheadditionofa mber
The forecast graph trendimprovetheforecast? 28
becomes shorter and alpha = .11, MAD = Octobe 374
smoother. r5
2.59;betaabove.6changes
Forec
3.What value for n the MAD (by a little) to
ast
minimizestheMADforthis 2.54.
372.9
data?
ACTIVEMODEL4.4: (c)
n=1(anaveforecast)
TrendProjections Theforecastis374.26.
ACTIVEMODEL4.2: 1.Whatistheannualtrend
ExponentialSmoothing inthedata?
1.What happens to the 10.54
graph when alpha equals 2.Usethescrollbarsforthe
zero? slope and intercept to
Thegraphisastraight determine the values that
line. The forecast is the minimize the MAD. Are
sameineachperiod. these the same values that
regressionyields?
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
30 CHAPTER 4F O R E C A S T I N G
Two-Year 420
Year Mileage Moving Average MAD 140
3
(0.120)
1 3,000 +(0.2
4.5(d)
2 4,000 20)
3 3,400 3,500 Forecast
4 3,800 3,700 Year Mileage Forecast Error
+
5 3,700 3,600 1 3,000 3,000
(0.2
2 4,000 3,000 1,000
3 3,400 3,500
4 3,800 3,450 21)
300 5 3,700 3,625 +
MAD 100. Total (0.3
3
23)]/
Theforecastis3,663miles.
1.0
4.6
=20.6
Y Sales X Period
[iv]Exponential
January 20 smoothing with
February 21
alpha=0.3
March 15
April 14 FOct 18 + 0.3(20 - 18) 18.6
May 13 FNov 18.6 + 0.3(20 - 18.6) 19.0
Nave tracks the ups June 16
July 17 FDec 19.02 + 0.3(21 - 19.02) 1
anddownsbestbutlags
August 18 FJan 19.6 + 0.3(23 - 19.6) 20.6
thedatabyoneperiod.
September 20
Exponential smoothing October 20 10 [v]Trend
is probably better November 21 11 x 78,x 6.5, y = 218,y 18.
becauseitsmoothesthe December 23 12
dataanddoesnothave xy - nx y
Sum 218 78 b
asmuchvariation. x 2 - nx 2
Average 18.2
TEACHING NOTE: 1474 - (12)(6.5)(18.2) 54.4
b 0.38
Notice how well 650 - 12(6.5)2 143
(a)
exponential smoothing a y - bx
forecaststhenave. a 18.2 - 0.38(6.5) 15.73
4.4 (a)FJuly FJune + 0.2(Forecastingerror) Forecast = 15.73
42 + 0.2(40 42) 41.6 +.38(1
3) =
(b)FAugust FJuly + 0.2(Forecastingerror) 20.67,
41.6 + 0.2(45 - 41.6) 42.3 where
next
January
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CHAPTER 4F O R E C A S T I N G 31
4.9 (d)TableforProblem4.9(d):
= .1 = .3 = .5
TableforProblem4.9(a,b,c)
Month Price per Forecast |Error| Forecast |Error| Forecast |Error|
Chip Forecast |Error|
January $1.80 $1.80 $.00
Two-Month$1.80 $.00
Three- $1.80 $.00
Two-Month Three-
February 1.67 1.80 .13 1.80 .13
Month 1.80 .13 Month
March 1.70 Price per
1.79 .09Moving1.76 Moving
.06 1.74 Moving.04 Moving
April Month 1.85 Chip
1.78 Average
.07 1.74 Average
.11 1.72 Average
.13 Average
May January
1.90 $1.80
1.79 .11 1.77 .13 1.78 .12
June February
1.87 1.67
1.80 .07 1.81 .06 1.84 .03
July March1.80 1.70
1.80 .00 1.735 1.83 .03 1.86 .035.06
August April 1.83 1.85
1.80 .03 1.685 1.82 1.723
.01 1.83 .165.00 .127
May 1.90 1.775 1.740 .125 .160
Septembe 1.70 1.81 .11 1.82 .12 1.83 .13
June 1.87 1.875 1.817 .005 .053
r
July 1.80 1.885 1.873 .085 .073
October 1.65 1.80 .15 1.79 .14 1.76 .11
August 1.83 1.835 1.857 .005 .027
November 1.70 1.78 .08 1.75 .05 1.71 .01
September 1.70 1.815 1.833 .115 .133
December 1.75
October 1.77
1.65 .02 1.765 1.73 .02
1.777 1.70 .115.05 .127
Totals
November 1.70 $.8 1.675 $.8
1.727 $.81
.025 .027
December 1.75 6 1.675 6
1.683 .075 .067
MAD (total/12) $.072 $.072
Totals . $.067 .793
5
=.5ispreferable,usingMAD,to=.1or=.3.Onecould
4.10 Year 1 2 3 4 5 6 7 8 9 10 11 Forecast
Demand 4 6 4 5.0 10.0 8.0 7.0 9.0 12.0 14.0 15.0
(a) 3-year moving 4.7 5.0 6.3 7.7 8.3 8.0 9.3 11.7 13.7
(b) 3-year 4.5 5.0 7.3 7.8 8.0 8.3 10.0 12.3 14.0
weighted
forecastbecomes56.3,or (96 + 88 + 90)
56patients. 4.8(a) 91.3
is the 3 results appear in
13th thefigurebelow.
month.
(c)Onlytrendprovides
an equation
that can
extend
beyond one
month
4.7Present=Period(week)
6.
1 1 1 1
a)So: F7 3 A6 + 4 A5 + 4 A4 + 6 A3 1.0
1 1 1 1
(52) + (63) + (48) + (70) = 56.76patients,
3
4
4
6 or57patients
where
(c)MAD (twomonth
1 1 1 1 moving average) = .750/10
1.0 = weights , , ,
3 4 4 6 MAD=13.5/5=2.7
=.075
b) Iftheweightsare20,15, (d)MSE = 66.75/5 = MAD (threemonth
15, and10, there willbe 13.35 movingaverage)=.793/9=.
nochangeintheforecast (e)MAPE = 14.94%/5 088
because these are the =2.99% Therefore, the twomonth
same relative weights as 4.9(a,b)Thecomputations moving average seems to
in part (a), i.e., 20/60, forboththetwo haveperformedbetter.
15/60,15/60,and10/60. and threemonth
c) Iftheweightsare0.4,0.3, averages appear
0.2, and 0.1, then the in the table; the
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
32 CHAPTER 4F O R E C A S T I N G
(b)|Error|=|ActualForecast|
4.11 (a) Year 1 2 3 4 5 6 7 8 9 10 11 Forecast
Year 1 2 3 4 5 6 7 8 9 10 11 MAD
Demand 4 6.0 4.0 5.0 10.0 8.0 7.0 9.0 12.0 14.0 15.0
Exp. smoothing
Exp. Smoothing 5 4.7 5.1 14.8 1.3 4.8 1.1
6.4 0.2 6.9 5.2 6.9 1.6 7.5 0.1 8.9 2.1 10.4 4.5 11.85.1 4.6 2.4
ThesecalculationswerecompletedinExcel.CalculationsareslightlydifferentinExcelOMandPOMforWindowsdueto
roundingdifferences.
4.12 2 50
3 52
Actual 4 56 (45 + 50 + 52)/3 = 4
t Day Demand 5 58 (50 + 52 + 56)/3 =
1 Monday 88 52.7
6 ? (52 + 56 + 58)/3 =
2 Tuesday 72 55.3
3 Wednesday 68
=12.3
4 Thursday 48 MAD=6.2
5 Friday (c)Trendprojection:
Ft=Ft1+(At1Ft1)
Let = .25. Let Monday Year Demand Trend Projection
forecastdemand=88 1 45 42.6 + 3.2 1 = 45.8
(c)The forecasts are
F2=88+.25(8888)=88 2 50 42.6 + 3.2 2 = 49.0
aboutthesame. 3 52 42.6 + 3.2 3 = 52.2
+0=88
4 56 42.6 + 3.2 4 = 55.4
F3=88+.25(7288)=88
5 58 42.6 + 3.2 5 = 58.6
4=84 6 ? 42.6 + 3.2 6 = 61.8
F4=84+.25(6884)=84
=3.2
4=80
MAD=0.64
F5=80+.25(4880)=80 Y a + bX
8=72
XY nXY
4.13(a)Exponential b
X 2 nX 2
smoothing,=0.6:
a Y bX
Exponential
Year Demand Smoothing X Y XY X2
1 45 41
2 50 1
41.0 + 0.6(4541) = 45
43.4 45 1
3 52 2
43.4 + 0.6(5043.4) 5047.4
= 100 4
4 56 3
47.4 + 0.6(5247.4) 5250.2
= 156 9
5 58 4
50.2 + 0.6(5650.2) 5653.7
= 224 16
6 ? 5
53.7 + 0.6(5853.7) 5856.3
= 290 25
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CHAPTER 4F O R E C A S T I N G 33
4.17 or2=8
So,.25=
Forecast Exponential
Year Sales Smoothing NowwecanfindF5:F5=
50+(4650)
2005 450 410.0
2006 495 410 + 0.6(450 410) = 434.0 F5=50+4650
2007 518 434 + 0.6(495 434) = 470.6 =504
2008 563 470.6 + 0.6(518 470.6) = For=.25,F5=50
499.0 4(.25)=49
2009 584 499 + 0.6(563 499) = 537.4
2010 537.4 + 0.6(584 537.4) = Theforecastfortimeperiod5
565.6 =49units.
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34 CHAPTER 4F O R E C A S T I N G
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 4F O R E C A S T I N G 35
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
36 CHAPTER 4F O R E C A S T I N G
6
xi yi - nx y
i 1 (9, 783) - 6(3.25833)(550)
b 6
2
x i - nx
2 67.1925 - 6 (3.25833)2
i 1
-969.489
-277.6
3.49222
a y - bx 550 - [(-277.6)(3.25)] 1, 454.6
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
4.32(a) x y xy x2
16 330 5,280 256
12 270 3,240 144
18 380 6,840 324
14
CHAPTER 4F300
O R E C A S4,200
TING 196 37
60 1,280 19,560 920
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
38 CHAPTER 4F O R E C A S T I N G
5 81.1 40
(b)Developing the
6 89.0 55 regression
relationship,wehave:
7 101.1 60 (Summe Tourists Ridership
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CHAPTER 4F O R E C A S T I N G 39
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
40 CHAPTER 4F O R E C A S T I N G
standard error
oftheestimateand
the MAD, the 0.2
constant is
better. However,
other smoothing
constants need to
beexamined.
Actual Smoothed
t A(t) Ft ( =
0.2)
1 50 +50.0
2 35 +50.0
3 25 +47.0
4 40 +42.6
5 45 +42.1
6 35 +42.7
7 20 +41.1
8 30 +36.9
9 35 +35.5
10 20 +35.4
11 15 +32.3
12 40 +28.9
13 55 +31.1
14 35 +35.9
15 25 +36.7
16 55 +33.6
17 55 +37.8
18 40 +41.3
19 35 +41.0
20 60 +39.8
21 75 +43.9
22 50 +50.1
23 40 +50.1
24 65 +48.1
25 +51.4
MAD
(c)Students should
note how stable
the smoothed
valuesarefor =
0.2. When
comparedtoactual
week 25 calls of
85, the smoothing
constant, = 0.6,
appears to do a
slightlybetterjob.
Onthebasisofthe
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CHAPTER 4F O R E C A S T I N G 41
4.44 XY - nXY
b
Week Actual Value Smoothed 87Trend Estimate Forecast Forecas X 2 - nX 2
So:MAD:
Value
10.875 t
8 a Y - bX
t At Ft ( = 0.3)
39 Tt ( = 0.2) FITt Error
3.586
1 50.000 50.00010.875 0.000 50.000 0.000
2 35.000 50.000 0.000 50.000 15.000
3 25.000 45.500 0.900 44.600 19.600
4 40.000 38.720 2.076 36.644 3.356
5 45.000 37.651 1.875 35.776 9.224
6 35.000 38.543 1.321 37.222 2.222
7 20.000 36.555 1.455 35.101 15.101
8 30.000 30.571 2.361 28.210 1.790
9 35.000 28.747 2.253 26.494 8.506
10 20.000 29.046 1.743 27.303 7.303
11 15.000 25.112 2.181 22.931 7.931
12 40.000 20.552 2.657 17.895 22.105
13 55.000 24.526 1.331 23.196 31.804
14 35.000 32.737 0.578 33.315 1.685
15 25.000 33.820 0.679 34.499 9.499
16 55.000 31.649 0.109 31.758 23.242
17 55.000 38.731 1.503 40.234 14.766
18 40.000 44.664 2.389 47.053 7.053
19 35.000 44.937 1.966 46.903 11.903
20 60.000 43.332 1.252 44.584 15.416
21 75.000 49.209 2.177 51.386 23.614
22 50.000 58.470 3.594 62.064 12.064
23 40.000 58.445 2.870 61.315 21.315
24 65.000 54.920 1.591 56.511 8.489
25 59.058 2.100 61.158
4.46(a) X Y
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42 CHAPTER 4F O R E C A S T I N G
and X =6885, Y =36.96, (b, c)Amit wants to 4.48(a) 27 7.70 5.497 2.20
XY = 20299.5, X 2 = forecast by 28 10.10 6.818 3.28
Quarter Contracts Sales Y 29 15.20 8.787 6.41
3857893, exponential X
Y 2 = 110.26, X = 529.6, smoothing (setting (Continued)
1 153 8
Y =2.843,Then: Februarys forecast
2 172 10
equal to Januarys
20299.5 - 13 529.6 2.843 20299.5 - 19573.5 3 197 15
b sales)withalpha
4 178 9
3857893 - 13 529.62 3857893 - 3646190
0.1. Barbara wants
5 185 12
726 to use a 3period
0.0034 6 199 13
211703 movingaverage.
7 205 12
a 2.84 - 0.0034 529.6 1.03 Sales Amit 8
Barba 226 16
andY=1.03+0.0034X Totals 1,51 95
January 400 5
As an indication of the
February 380 400 Average 189.375
usefulness of this 11.875
March 410 398
relationship,wecancalculate
April 375 399.2 396.67
b =(183848 189.375
thecorrelationcoefficient: May 405 396.8 388.33
11.875)/(290,413 8
MAD
n XY - X Y 189.375
r
n X 2 - ( X ) n Y 2 - ((d)
2 2 189.375)=0.1121
Y )
NotethatAmithasmore
a = 11.875 0.1121
forecast observations,
189.375=9.3495
13 20299.5 - 6885 36.96 whileBarbarasmoving
average does not start
Sales(y)=9.349+0.1121
13 3857893 - 68852 13 110.26 - 36.962 (Contracts)
untilmonth4.Alsonote
thattheMADforAmit (b)
263893.5 - 254469.6
is an average of 4 r (8 18384 - 1515 95) ((8 290,413 - 15152 )(8 1183 - 952 ))
50152609 - 47403225 1433.4 - 1366.0
numbers, while
9423.9 Barbarasisonly2. 0.8963
2749384 67.0 Amits MAD for Sxy 1183 - (-9.3495 95) - (0.112 18384 / 6) 1.3408
9423.9 exponential smoothing
0.692 r 2 .8034
1658.13 8.21 (16.11) is lower than
that of Barbaras 4.49(a)
r 2 0.479 movingaverage(19.17). Method Exponential Smoothing
A correlation coefficient of Sohisforecastseemsto 0.6 =
0.692isnotparticularlyhigh. bebetter. Year Deposits Forecast
The coefficient of (Y )
2
determination, r , indicates 1 0.25 0.25
thatthemodelexplainsonly 2 0.24 0.25
47.9% of the overall 3 0.24 0.244
variation. Therefore, while 4 0.26 0.241
the model does provide an 5 0.25 0.252
estimate of GPA, there is 6 0.30 0.251
7 0.31 0.280
considerable variation in
8 0.32 0.298
GPA, which is as yet 9 0.24 0.311
unexplained.For 10 0.26 0.268
11 0.25 0.263
(b)X 350:Y 1.03 + 0.0034 350 2.22 12 0.33 0.255
(c)X 800:Y 1.03 + 0.0034 800 3.75 13 0.50 0.300
14 0.95 0.420
Note: When solving this 15 1.70 0.738
problem,caremustbetakento 16 2.30 1.315
interpretsignificantdigits.Also 17 2.80 1.906
notethatX=800isoutsidethe 18 2.80 2.442
range of the data set used to 19 2.70 2.656
determine the regression 20 3.90 2.682
relationship, so caution is 21 4.90 3.413
advised. 22 5.30 4.305
23 6.20 4.90
4.47(a)There is not a 24 4.10 5.680
strong linear trend in sales 25 4.50 4.732
overtime. 26 6.10 4.592
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CHAPTER 4F O R E C A S T I N G 43
4.49(a)(Continued) appropriate
choice. Measures
Method Exponential Smoothing
0.6 = of error and
Year Deposits Forecast goodnessoffitare
(Y ) really irrelevant.
30 18.10 12.6350 Exponential
31 24.10 15.9140 smoothing
32 25.60 20.8256 providesaforecast
33 30.30 23.69 only of deposits
34 36.00 27.6561 forthenextyear
35 31.10 32.6624 and thus does not
36 31.70 31.72
Forecasting Summary Table
37 38.50 31.71 Exponential Linear Regression
38 47.90 35.784 Method used: Smoothing (Trend Analysis) Linear Regression
39 49.10 43.0536 Y = 18.968 + Y = 17.636 +
40 55.80 46.6814 1.638 YEAR 13.59364
41 70.10 52.1526 GSP
42 70.90 62.9210 MAD 3.416 10.587 10.255
43 79.10 67.7084 MSE 34.39 171.817 204.919
44 94.00 74.5434 Standard error using 6.075 13.416 14.651
TOTALS 787.30 n 2 in denominator
Correlation coefficient 0.846 0.813
AVERAGE 17.8932 31 31 24.10 13 1.20 0.50 1
32 32 25.60 14 1.20 0.95 1 address the five
Next period forecast = 86.2173 15 1.20 1.70 1
33 33 30.30 year forecast
34 34 36.00 16 1.60 2.30 4 problem. In order
17 1.50 2.80 2
35 35 31.10 to use the
Method Linear Regression 36 (Trend36
Analysis) 31.70
18 1.60 2.80 4
regression model
Year Period (X ) Deposits 37 37 38.50 19 1.70 2.70 5 based upon GSP,
1 1 0.25 38 38 47.90
20 1.90 3.90 8 one must first
2 2 0.24 39 39 49.1021 1.90 4.90 8 develop a model
3 3 0.24 40 40 55.8022 2.30 5.30 13 to forecast GSP,
4 4 0.26 41 41 70.1023 2.50 6.20 16 and then use the
5 5 0.25 42 42 70.9024 2.80 4.10 20 forecastofGSPin
43 43 79.1025 2.90 4.50 21 the model to
6 6 0.30
44 44 94.0026 3.40 6.10 28 forecast deposits.
7 7 0.31
27 3.80 7.70 34
8 8 0.32 TOTALS 990.0 787.30 This requires the
28 4.10 10.10 38
9 9 0.24 0
29 4.00 15.20 36
development of
10 10 0.26 AVERAGE 22.50 17.893 30 4.00 18.10 36 two modelsone
11 11 0.25 31 3.90 24.10 35 of which (the
12 12 0.33 32 3.80 25.60 34 model for GSP)
33 3.80 30.30 34 must be based
13 13 0.50 Method Least squaresSimple
34 Regression
3.70 36.00on 32 solely on time as
14 14 0.95 35 4.10 31.10 38 the independent
a b 36 4.10 31.70 38
15 15 1.70 variable (time is
17.636 13.5936 37 4.00 38.50 36
16 16 2.30 the only other
Coefficients GSP Deposit 38 4.50 47.90 43
17 17 2.80 : s variable we are
39 4.60 49.10 44
18 18 2.80 Year (X) (Y ) Forecast
40 4.50 55.80 43
given).
19 19 2.70 (b)Onecouldmakea
1 0.40 0.25 12 41 4.60 70.10 44
20 20 3.90 2 0.40 0.24 12 42 4.60 70.90 44 case for exclusion
21 21 4.90 3 0.50 0.24 10 43 4.70 79.10 46 of the older data.
22 22 5.30 4 0.70 0.26 8 44 5.00 94.00 50 Were we to
23 23 6.20 5 0.90 0.25 5 TOTALS exclude data from
24 24 4.10 6 1.00 0.30 4 AVERAGE roughlythefirst25
25 25 4.50 7 1.40 0.31 1
years,theforecasts
26 26 6.10 8 1.70 0.32 5
Given that one for the later years
27 27 7.70 9 1.30 0.24
0.036086 wishes to develop would likely be
28 28 10.10 a fiveyear considerably more
10 1.20 0.26 1
29 29 15.20 forecast, trend accurate. Our
11 1.10 0.25 2
30 30 18.10 12 0.90 0.33 5 analysis is the argumentwouldbe
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
44 CHAPTER 4F O R E C A S T I N G
ADDITIONAL
HOMEWORK MAD= 10/4=2.5, MSE=
38/4=9.5
PROBLEMS
Theseproblems,whichappear 4.53(a)3month moving
on www.myomlab.com, average:
provide an additional 13
problemsthatyoumaywishto Three-Month
assign.
Month Sales Moving Average
4.50
Week 1 2 3 4 5 January
6 7 8 11 9 10 Forecast
February 14
Registration 22 21 25 27 35 March
29 33 3716 41 37
(a) Nave 22 21 25 27 April
35 29 3310 37 (1141+ 14 37
+ 16)/3 =
(b) 2-week moving 21.5 23 26 31 32 31 35 39 39
(c) 4-week moving 23.7 May
27 29 3115 33.5(14
35+ 16 37
+ 10)/3 =
5
June 17 (16 + 10 + 15)/3 =
=
2
2
.
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 4F O R E C A S T I N G 45
(c)Based on a Sales
Month Mean 9.17 Average4.56To Absolute
Three-Month yMoving compute (b) Correlation
Absolute x 3.5
Moving seasonalizedoradjustedsales
Deviation coefficient:
Deviation forecast,wejustmultiplyeach n XY - X Y
January 11 y 5.27 + 1.11x
criterion, 14the seasonalized index by the r
February n X 2 - ( X ) 2 n Y 2
3month moving Period 7 forecast = appropriatetrendforecast.
March 16
average 10 with 13.07
April (1 11 + 2 14 + 3 16)/6 = 14.50 Y 4.50 Y
Index 5 70 - 15 20
MAD = 2.2 is15 to Period
(1 14 + 2 16 12+ forecast
3 10)/6 = = 12.67Seasonal Trendforecast
May 2.33
June be preferred 17
over 18.64, but this is far
(1 16 + 2 10 + 3 15)/6 = 13.50 Hence,for 3.50 5 55 - 152 5 130 - 2
July the 3month 11 outside
(1 10 + 2 15 the
+3 range
17)/6 of = 15.17QuarterI:Y4.17
I 1.25 120,000 150,000
August weighted moving 14 validdata.
(1 15 + 2 17 + 3 11)/6 = 13.67 0.33 350 - 300
Septemberaverage 17 with (1 17 + 2 11 + 3 14)/6 = 13.50 II 0.90 140,000 126,000
QuarterII:Y3.50
October MAD=2.72. 12 (1 11 + 2 14 + 3 17)/6 = 15.00 3.00
275 - 225 650 - 400
QuarterIII:Y 0.75 160,000 120,000
III
November 14 (1 14 + 2 17 + 3 12)/6 = 14.00 0.00 50
(d)Other factors 16
that 0.45
December (1 17 + 2 12 + 3 14)/6 = 13.83 IV 1.10 180,000 198,000
QuarterIV:Y2.17
111.80
January mightbeincluded11 (1 12 + 2 14 + 3 16)/6 = 14.67 3.67
February in a more (1 14 + 2 16 + 3
4.57
11)/6 = 13.17
complex model Mon Tue Wed Thu Fri Sat
=27.17
are interest rates Week 1 210 178 250 215 160 180
and cycle or MAD=2.72
Week 2 215 180 250 213 165 185
seasonalfactors. Week 3 220 176 260 220 175 190
4.54(a) Week 4 225 178 260 225 176 190
Averages 217. 17 255 218. 16 186.3 Overall average =
Actua Cumulativ 5 8 3 9 204
l
Wee Miles Foreca Error Error (a)Seasonalindices: The correlation coefficient
k st indicates that there is a
1.066 (Mon)0.873 (Tue)
1 17 17.00 0.00 positive
1.25 (Wed)
2 21 17.00 4.00 correlation between bank
3 19 17.80 1.20 1.07 (Thu)0.828 (Fri)
0.913 (Sat) depositsandconsumerprice
4 23 18.04 4.96
indicesin
5 18 19.03 +1.0 (b)To calculate for
3 Monday of Week
6 16 18.83 +2.8 5 = 201.74 +
3
0.18(25)1.066=
7 20 18.26 1.74
219.9 rounded to
8 18 18.61 +0.6
1 220
9 22 18.49 3.51 Forecast 220 (Mon)
10 20 19.19 0.81 180 (Tue) 258 (Wed)
11 15 19.35 +4.3 221 (Thu) 171
5 (Fri)189 (Sat)
12 22 18.48 3.52
4.58(a)4000 +
(b)The MAD = 0.20(15,000)=7,000
28.56/12=2.38
(b)4000 +
(c)The cumulative 0.20(25,000)=9,000
error andtracking
signals appear to 4.59(a)35 + 20(80) +
be consistently 50(3.0)=1,785
negative, and at (b)35 + 20(70) +
week 10, the 50(2.5)=1,560
tracking signal 4.60Given:X=15,Y=
exceeds5MADs. 2 2
20,XY=70,X =55,Y
Birmingham, Alabamai.e.,
=130, X =3, Y =4
4.55 y x x2 as one variable tends to
(a) XY - nXY increase (or decrease), the
7 1 1 b
9 2 4 X 2 - nX 2 other tends to increase (or
5 3 9 a Y - bX decrease).
11 4 16
70 - 5 3 4 70 4.60(c)Standard
- 60 10 error of
10 5 25 b
theestimate: 1
13 6 36 55 - 5 32 55 - 45 10
55 21 91 a 4 - 1 3 4 - 3 1
Y 1 + 1X
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
46 CHAPTER 4F O R E C A S T I N G
130 - 20 - 70
40
13.3 3.65 Y 2 - a Y - b XY 94 thedata.
- 1 20 - 1 70
Syx
3 3 n-2 The 5 - 2importance of
combining a qualitative
4.61 94 - 20 - 70
1.333 1.15 model with a quantitative
X Y 3 model in situations where
2 4 technological change is
1 1 4.62Usingsoftware,the occurring.
4 4
5 6 regressionequationis: 1.A plot of the data
3 5 Gameslost=6.41+0.533 indicatesalineartrend(least
Column Totals 15 20 daysrain. squares) model might be
appropriate for forecasting.
Given:Y=a+bXwhere: Usinglineartrendyouobtain
CASE STUDIES thefollowing:
XY - nXY
b
X 2 - nX 2 1 SOUTHWESTERN x y x2 xy
a Y - bX UNIVERSITY:B 1 480 1 48
Thisisthesecondinaseries 2 436 4 87
andX=15,Y=20,XY= ofintegratedcasestudiesthat 3 482 9 1,44
2 2
70,X =55,Y =94, X = runthroughoutthetext. 4 448 16 1,79
3, 5 458 25 2,29
1.One way to address the
Y =4.Then: 6 489 36 2,93
case is with separate 7 498 49 3,48
70 - 5 4 3 70 - 60 forecasting models for each
b 1.0 8 430 64 3,44
55 - 5 32 55 - 45 game. Clearly, the 9 444 81 3,99
a 4 - 1 3 1.0 homecoming game (week 2) 10 496 100 4,96
and the fourth game (craft 11 487 121 5,35
and Y = 1.0 + 1.0X. The festival)areuniqueattendance 12 525 144 6,30
correlationcoefficient: situations. 13 575 169 7,47
14 527 196 7,37
n XY - X Y 15 540 225 8,10
r Game Model 16 502 256 8,03
n X 2 - ( X ) 2 n Y 2 - ( Y ) 2 17 508 289 8,63
1 y = 30,713 + 2,534x
18 573 324 10,31
2 y = 37,640 + 2,146x
5 70 - 15 20 350 - 300 3 y = 36,940 + 1,560x 19 508 361 9,65
20 498 400 9,96
5 55 - 152 5 94 - 202 275 - 225 470 - 400 4 y = 22,567 + 2,143x
21 485 441 10,18
5 y = 30,440 + 3,146x
Total 22 526 484 11,57
50 50
0.845 23 552 529 12,69
50 70 59.16 24 587 576 14,08
(where y =attendanceand x 25 608 625 15,20
=time) 26 597 676 15,52
27 612 729 16,52
2.Revenue in 2010 =
28 603 784 16,88
(239,000) ($50/ticket) = 29 628 841 18,21
$11,950,000 30 605 900 18,15
Revenue in 2011 = 31 627 961 19,43
(250,530) ($52.50/ticket) 32 578 1,024 18,49
=$13,152,825 33 585 1,089 19,30
34 581 1,156 19,75
3.In games 2 and 5, the 35 632 1,225 22,12
forecast for 2011 exceeds 36 656 1,296 23,61
stadium capacity. With this Totals 666 19,366 16,206 378,6
appearingtobeacontinuing
trend,thetimehascomefora Average 18.5 537.9 450.2 10,5
neworexpandedstadium.
2 DIGITALCELL
PHONE,INC.
Objectives:
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
CHAPTER 4F O R E C A S T I N G 47
xy - nx y 378,661 - 36 18.5AnalysisforManagement,
537.9 20390.0 years ago. This system 2003 51.80 43.4
b 5.25
2
x - nx 2
16,206 - (36 18.52 ) ed., Prentice
10th 3885.0 Hall actually protects managers 2004 54.92 38.5
Publishing. from large sales variations 2005 69.70 51.4
a y - bx 537.9 - 5.25 18.5 440.85 2006 68.90 58.7
Cases = 432.28 + 5.73 outside their control. One
n xy - x y (time), r2 = .93, MAD = could also justify a 50% 2007 63.72 45.4
r 2008 84.73 50.2
[ n x 2 - ( x )2 ][ n y 2 - ( y)212.84
] 30%20% model or some
2009 78.74 79.6
othervariation.
(36)(378,661) - c)Additiveseasonalmodel,
(666)(19,366)
4.Other predictors of cafe
2 Cases = 444.29 + 5.06
[(36) (16,206) - (666) ][(36)(10,558,246) - (19,366)2 ] salescouldincludeseasonof
(time), r2 = .86, MAD = Southeast Airline D
13,631,796 - 12,897,756
20.02 year (weather); hotel
Airframe Cost Engine
[(583,416) - (443,556)][380,096,856) - (375,041,956)] occupancy;springbreakfrom Year per Aircraft per Airc
d) Additive seasonal model,
colleges; beef prices;
737,040 with
734,040 centered moving 2003 13.29 18.8
promotionalbudget;etc.
[139,860][5,054,900] averages.
706,978,314,000 2004 25.15 31.5
Cases = 431.31 + 5.72 5.Ya+bx 2005 32.18 40.4
734,040 (time), r2 = .94, MAD = 2006 31.78 22.1
.873 Month Advertising Guest Count
840,820 12.28 X Y
2007 25.34 19.6
2008 32.78 32.5
r 2 .76 Thetwomethodsthatuse 1 14 21 2009 35.56 38.0
y 440.85 + 5.25(time) the average of all data have 2 17 24
r=0.873indicatinga
very similar results, and the 3 25 27 Utilizing the software
reasonablygoodfit twoCMA methodsalso look 4 25 32 package provided with this
quiteclose.Assuggestedwith 5 35 29 text, we can develop the
The student should thisanalysis,CMAistypically following regression
reportthelineartrendresults, thebettertechnique. 6 35 37
equationsforthevariablesof
but deflate the forecast interest:
7 45 43
obtained based upon VIDEO CASE Northern Airlines
qualitativeinformationabout
industry and technology
STUDY 8 50 AirframeMaintenanceCost:
43
Cost=36.10+0.0026
trends. FORECASTINGAT 9 60 54
Becausethereislimited Airframeage
HARDROCKCAFE Coefficient of
seasonality in the data, the 10 60 66
linear trend analysis above There is a short video (8 determination=0.7695
Totals 36 37
providesagoodr2of.76. minutes) available from Coefficient of
6 6
However,amoreprecise Prentice Hall and filmed Averag 36.6 37.6 correlation=0.8772
forecast can be developed specifically for this text that e Northern AirlinesEngine
addressing the seasonality supplementsthiscase. MaintenanceCost:
issue, which is done below. 1.Hard Rock uses Cost=20.57+0.0026
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
48 CHAPTER 4F O R E C A S T I N G
Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.