Pamantasan ng Lungsod ng Maynila

(University of the City of Manila)

Graduate School of Business and Government Management

FORECASTING

Presented to:
Ms. Geraldine Reyes

Presented by:
Alfonso, Kathrina Micah D.
Menia, Julia Flor Angelie G.
Olalia, Jhane S.
Romero, Rae Anne Joy P.

January 11, 2020

4.1 The following gives the number of pints of type B blood used at Woodlawn
Hospital in the past 6 weeks
WEEK OF PINTS USED
August 31 360
September 7 389
September 14 410
September 21 381
September 28 368
October 5 374

a) Forecast the demand for the week of October 12 using a 3-week moving
average
Answer: (374 + 368 + 381) / 3 = 374.33 pints

b) Use a 3-week weighted moving average, with weights of .1, .3, and .6,
using .6 for the most recent week. Forecast demand for the week of
October 12.

Answer:
WEEK OF PINTS USED 381 x .1 = 38.1
August 31 360 368 x .3 = 110.4
September 7 389 374 x .6 = 224.4
September 14 410 ____
September 21 381 372.9
September 28 368
October 5 374
FORECAST = 372.9
c) Compute the forecast for the week of October 12 using exponential
smoothing with a forecast for August 31 of 360 and a = .2.
Answer:

FORECASTING ERROR
WEEK OF PINTS FORECAST ERROR x .20 FORECAST
August 31 360 360 0 0 360
September 389 360 29 5.8 365.8
7
September 410 365.8 44.2 8.84 374.64
14
September 381 374.64 6.36 1.272 375.912
21
September 368 375.912 -7.912 -1.5824 374.3296
28
October 5 374 374.3296 -.3296 -.06592 374.2636

The forecast is 374.26

4.2
YEAR 1 2 3 4 5 6 7 8 9 10 11
DEMAND 7 9 5 9 13 8 12 13 9 11 7

a) Plot the above data on a graph. Do you observe any trend, cycles, or
random variations?
Answer: None. The data appear to have no consistent pattern.

b) Starting in year 4 and going to year 12, forecast demand using a 3-year
moving average. Plot your forecast on the same graph as the original
data.
Answer:

Year 1 2 3 4 5 6 7 8 9 10 11 FORECAST
Demand 7 9 5 9 13 8 12 13 9 11 7
3-Year 7 7.7 9 10 11 11.3 11 9 9.0
Moving

c) Starting in year 4 and going to year 12, forecast demand using a 3-year
moving average with weights of .1, .3, and .6, using .6 for the most
recent year. Plot this forecast on the same graph.
Answer:

Year 1 2 3 4 5 6 7 8 9 10 11 FORECAST
Demand 7 9 5 9 13 8 12 13 9 11 7
3-Year 7 7.7 9 10 11 11.3 11 9 9.0
Moving
3-Year
6.4 7.8 11 9.6 10.9 12.2 10.5 10.6 8.4
Weighted

d) As you compare forecasts with the original data, which seems to give
the better results?
Answer:

Conclusion: The three-year moving average appears to give better results.

4.3 Refer to Problem 4.2. Develop a forecast for years 2 through 12 using
exponential smoothing with a = .4 and a forecast for year 1 of 6. Plot your new
forecast on a graph with the actual data and the naive forecast. Based on a visual
inspection, which forecast is better?

Year 1 2 3 4 5 6 7 8 9 10 11 FORECAST
Demand 7 9 5 9 13 8 12 13 9 11 7
Naive 7 9 5 9 13 8 12 13 9 11 7
Exp.
6 6.4 7.4 6.5 7.5 9.7 9 10.2 11.3 10.4 10.6 9.2
Smoothing

(A) Naïve tracks the ups and downs

best, but lags the data by one
period.
(B) Exponential smoothing is probably
better because it smoothens the
data and does not have as much
variation.

4.4 A check processing center uses exponential smoothing to forecast the number
of incoming checks each month. The number of checks received in June was 40
million, while the forecast was 42 million. A smoothing constant of .2 is used.

a. What is the forecast for July?

Answer: The forecast for July will be 41.6 million
Ft=42+0.2(40-42)
=41.6

b. If the center received 45 million checks in July, what would be the forecast
for August?
Answer: The forecast for August will be 42.3 million
Ft=41.6+0.2(45-41.6)
=42.3

c. Why might this be an inappropriate forecasting method for this situation?

Answer: Based on the given, the banking industry has a lot of seasonality in terms
of the processing requirements.

4.10 Data collected on the yearly registrations for a Six Sigma seminar at the
Quality College are shown in the following table:
YEAR 1 2 3 4 5 6 7 8 9 10 11
REGISTRATIONS 4 6 4 5 10 8 7 9 12 14 15
(000)
a) Develop a 3-year moving average to forecast registrations from year 4 to year
12.
(b) 3-Year
(a) 3-Year
Weighted
YEAR REGISTRATION Moving
Moving
Average
Average
1 4
2 6
3 4
4 5 4.7 4.5
5 10 5.0 5.0
6 8 6.3 7.3
7 7 7.7 7.8
8 9 8.3 8.0
9 12 8.0 8.3
10 14 9.3 10.0
11 15 11.7 12.3
Forecast 13.7 14.0

b) Estimate demand again for years 4 to 12 with a 3-year weighted moving

average in which registrations in the most recent year are given a weight of
2, and registrations in the other 2 years are each given a weight of 1.

16

14

12

10

0
1 2 3 4 5 6 7 8 9 10 11

Demand 3-year moving 3-year weighted

c) Graph the original data and the two forecasts. Which of the two forecasting
methods seems better?
 Answer: It can be observed that the forecast for the 3-year moving average and
the 3-year weighted moving average are almost the same. Thus, the two
forecasting methods are both useful.

4.11 Use exponential smoothing with a smoothing constant of 0.3 to forecast the
registrations at the seminar given in Problem 4.10. To begin the procedure, assume
that the forecast for year 1 was 5,000 people signing up.
a) What is the MAD?
b) What is the MSE?

Absolute
Exponential
YEAR Demand Deviation for
Smoothing
a=0.3
1 4 5 1
2 6 4.7 1.3
3 4 5.1 1.1
4 5 4.8 0.2
5 10 4.8 5.2
6 8 6.4 1.6
7 7 6.9 0.1
8 9 6.9 2.1
9 12 7.5 4.5
10 14 8.9 5.1
11 15 10.4 4.6
(a)MAD 2.4
(b)MSE 5.9

4.12 Consider the following actual and forecast demand levels for Big Mac
hamburgers at a local McDonald’s restaurant:
DAY ACTUAL FORECAST
DEMAND DEMAND
Monday 88 88
Tuesday 72 88
Wednesday 68 84
Thursday 48 80
Friday

The forecast for Monday was derived by observing Monday’s demand level and
setting Monday’s forecast level equal to this demand level. Subsequent forecasts
were derived by using exponential smoothing with a smoothing constant of 0.25.
Using this exponential smoothing method, what is the forecast for Big Mac demand
for Friday?
Answer:
Actual Forecast
Day Demand Demand
 Monday 88 88
Tuesday 72 88
Wednesday 68 84
Thursday 48 80
Friday 72

Using the exponential smoothing method, the forecast for Big Mac Demand on Friday is
72.

4.13 As you can see in the following table, demand for heart transplant surgery at
Washington General Hospital has increased steadily in the past few years:
YEAR 1 2 3 4 5 6
HEART 45 50 52 56 58 ?
TRANSPLANTS
The director of medical services predicted 6 years ago that demand in year 1 would
be 41 surgeries.
a) Use exponential smoothing, first with a smoothing constant of .6 and then
with one of .9, to develop forecasts for years 2 through 6.

EXPONENTIAL
SMOOTHING α = Absolute
YEAR DEMAND 0.6 Deviation
1 45 41.00 4.0
2 50 43.40 6.6
3 52 47.36 4.6
4 56 50.14 5.8
5 58 53.66 4.3
6 ? 56.26 -
∑ 25.3
MAD 5.06

b) Use a 3-year moving average to forecast demand in years 4, 5, and 6.

EXPONENTIAL
SMOOTHING α = Absolute
YEAR DEMAND 0.9 Deviation
1 45 41.00 4.0
2 50 44.60 5.4
3 52 49.46 2.5
4 56 51.75 4.2
5 58 55.57 2.4
6 ? 57.76 -
∑ 18.5
MAD 3.7
 c) With MAD as the criterion, which of the four forecasting methods is best?

Forecast Methodology MAD

Exponential Smoothing
α=0.6 5.06
Exponential Smoothing
α=0.9 3.7
3-Year Moving Average 6.2

Answer: Based on the computed Mean Absolute Deviation, the Exponential Smoothing
α=0.9 is to be preferred among the other methodologies.

4.14 Following are two weekly forecasts made by two different methods for the
number of gallons of gasoline, in thousands, demanded at a local gasoline station.
Also shown are actual demand levels, in thousands of gallons.

FORECAST
WEEK METHOD 1 METHOD 2 ACTUAL
DEMAND
1 0.90 0.80 0.70
2 1.05 1.20 1.00
3 0.95 0.90 1.00
4 1.20 1.11 1.00

What are the MAD and MSE for each method?

Answer: METHOD 1 MAD: (0.20+0.05+0.05+0.20)/4 = 1.25

MSE: (0.04+0.0025+0.0025+0.04)/4=.021

METHOD 2 MAD: (0.1+0.20+0.10+0.11)/4 = .1275

MSE: (0.01+0.04+0.01+0.0121)/4=.018

4.15 Refer to Solved Problem 4.1 on page 144.

a) Use a 3-year moving average to forecast the sales of Volkswagen Beetles in
Nevada through year 6.
b) What is the MAD?
c) What is the MSE?
Answer:
Forecast 3-
Year
Moving Absolute
Year Sales Average Deviation
2005 450
2006 495
 2007 518
2008 563 487.7 75.3
2009 584 525.3 58.7
2010 555.0
∑ 134.
MAD 67

4.16 Refer to Solved Problem 4.1 on page 144.

a) Using the trend projection (regression) method, develop a forecast for the
sales of Volkswagen Beetles in Nevada through year 6.
b) What is the MAD?
c) What is the MSE?

Answer:
Time Period XY
Year (X) Sales (Y) X2
2005 1 450 1 450
2006 2 495 4 990
2007 3 518 9 1554
2008 4 563 16 2252
2009 5 584 25 2920
Σ=2610 Σ=55 Σ=8166
X̅=3 Y̅=522
Y = a + bX
b = 33.10
a = 421.2
y = 622.8

Year Sales Forecast Trend Absolute Deviation

2005 450 454.8 4.8
2006 495 488.4 6.6
2007 518 522.0 4.0
2008 563 555.6 7.4
2009 584 589.2 5.2
2010 622.8
Σ=28 MAD = 5.6

4.17 Refer to Solved Problem 4.1 on page 144. Using smoothing constants of .6 and
.9, develop forecasts for the sales of VW Beetles. What effect did the smoothing
constant have on the forecast? Use MAD to determine which of the three
smoothing constants (.3, .6, or .9) gives the most accurate forecast.

Answer:
Year Sales Forecast Exponential Smooting α =0.6 Absolute Deviation
2005 450 410.0 40
2006 495 434.0 61
 2007 518 470.6 47.4
2008 563 499.0 64
2009 584 537.4 46.6
2010 565.4
Σ=259 MAD = 51.8

Year Sales Forecast Exponential Smooting α =0.9 Absolute Deviation

2005 450 410.0 40
2006 495 446.0 49
2007 518 490.1 27.9
2008 563 515.2 47.8
2009 584 558.2 25.8
2010 581.4
Σ=190.5 MAD = 38.1

Based on the solved problem under 4.1 For α=0.3, the absolute deviations for 2005-2009
are 40.0, 73.0, 74.1, 96.9, 88.8 respectively. Our MAD is 74.6. Comparing the 3 MAD per
above computations, we can conclude that a smoothing constant of α =0.9 is the most
accurate forecast because it gives the lowest MAD.

4.18 Consider the following actual and forecast demand levels for a commercial
multiline telephone at Office Max:
TIME ACTUAL FORECAST
PERIOD DEMAND DEMAND
1 50 50
2 42 50
3 56 48
4 46 50
5
The first forecast, F1, was derived by observing A1 and setting F1 equal to A1.
Subsequent forecast averages were derived by exponential smoothing. Using the
exponential smoothing method, find the forecast for time period 5. (Hint: You need
to first find the smoothing constant, a.)

Answer:
Obtain the smoothing constant:
48 = 50 + 42α - 50 α
-2 = -8 α
.25= α
Using Exponential smoothing with a smoothing constant of α =.25:

F5 = 50 + α (46-50)
= 50 + 46 α - 50 α
F5 = 50 – 4 α
= 50 – 4(.25)
= 49
The forecast for time period 5 is 49 units.
CASE STUDY: SOUTHWESTERN UNIVERSITY

1.) Develop a forecasting model, justifying its selection over other techniques, and
project attendance through 2017.

GAME MODEL 2016 2017 R2

1 y = 30,713 + 2,534x 48,453.00 50,988.00 0.92

2 y = 37, 640 + 2,146x 52,660.00 54,806.00 0.90

3 y = 36, 940 + 1,560x 47,860.00 49,420.00 0.91

4 y = 22, 567 + 2,143x 37,567.00 39,710.00 0.88

5 y = 30, 440 + 3,146x 52,460.00 55,606.00 0.93

Total 239,000.00 250,530.00

(where y = attendance and x = time)

2.) What revenues are to be expected in 2016 and 2017?

Answer: Revenue in 2016 = (239,000) ($50/ticket) = $4,780,000
Revenue in 2017 = (250,530) ($52.5/ticket) = $5,261,130

3.) Discuss the school’s options.

Answer: It can be observed that in games 2 and 5 for the year 2017, these
exceeded 50,000. With this, it can be said that the stadium can be expanded