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Learning Objectives
Recommend the appropriate forecasting model for a given situation. Conduct a Delphi forecasting exercise. Describe the features of exponential smoothing. Conduct time series forecasting using exponential smoothing with trend and seasonal adjustments.
Forecasting Models
Subjective Models Delphi Methods Causal Models Regression Models Time Series Models Moving Averages Exponential Smoothing
Saturday
Period
Occupancy
Forecast
Aug.
1 8 15 22 29 Sept. 5 12
1 2 3 4 5 6 7
79 84 83 81 98 100
82 83 87 93
82 83 87 93
Exponential Smoothing
Let : ST = Smoothed value at end of period T AT = Actual observation for period T FT+1 = Forecast for period T+1
Feedback control nature of exponential smoothing New value (ST ) = Old value (ST-1 ) +
[ observed error ]
ST ST-1 [ AT ST 1 ]
or :
ST AT (1 ) ST 1 FT 1 ST
Period t 1 2 3 4 5 6
Forecast Ft
79 82 82 82 90
5 1 1 16 10 MAD = 6.6
ST 1 AT (1 )[AT 1 (1 ) ST 2 ] ST AT (1 )[AT 1 (1 ) ST 2 ] ST AT (1 ) AT 1 (1 ) 2 ST 2
If continued:
ST AT (1 ) AT 1 (1 ) 2 AT 2 ..... (1 ) T 1 A1 (1 ) T S0
0.3
(1 ) 0.21
(1 )2 0147 . (1 )3 0103 . (1 )4 0.072 (1 )5 0.050
0.2 0.1 0 0 1
105 100 95 90 85 80 75
0 1 2 3
Occupancy
Forecast
( 0.1)
Period
31 37 42 51 53 64 65
9 6 10 2 11 6 3 MAD = 6.7
St ( At / I t L ) (1 ) St 1 Ft 1 ( St )( I t L 1 ) A I t t (1 ) I t L St
Error | At - Ft|
495 80
What characteristics of service organizations make forecast accuracy important? For each of the three forecasting methods, what are the developmental costs and associated cost of forecast error? Suggest independent variables for a regression model to predict the sales volume for a proposed video rental store location. Why is the N-period moving-average still in common use if the simple exponential smoothing model is superior? What changes in , , would you recommend to improve the performance of the trendline seasonal adjustment forecast shown in Figure 11.4?
2040
2044 2048 2052 Never Total