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Unit 2Management of Conversion System
Chapter 3: Forecasting
 
Lesson 6:
Weighted Moving AveragesLearning Objectives
After reading this lesson you will be able to understand
significance of moving averages
concept of Smoothing
least square method of forecasting
Good Morning students, today we are going to introduce the concept of what is known as the Weighted Moving Averages
Friends, you would recall that in the last lecture we learnt about :The importance of forecasting,Different qualitative methods of forecasting andStarted with quantitative approach of forecasting.Hope you are enjoying it and excited to know more about it. Today we willstart with weighted moving average.
What is Weighted Moving Averages?
When there is a detectable trend or pattern, weights can be used to placemore emphasis on recent values. This makes the techniques more responsiveto changes since more recent periods may be more heavily weighted.Deciding which weights to use requires some experience and a bit of luck.
 
Choice of weights is somewhat arbitrary since there is not set formula todetermine them.Mathematically,Weighted Moving average =
∑
(weight for period n) x (Demand in periodn) /
∑
weights
An Example of assignment of weight is
Time in the past Weightage4 years ago3 years ago2 years agoLast year 0.050.250.30.4Let us now again consider the example of Arvee Electronics to forecastwashing machine sales by weighting the past three months as follows:Weights applied Period3 Last month2 Two months ago1 Three months ago6 Sum of weightsMonth Actual Washing Three-month weighted moving
 
machine sales,unitsaverageJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember October  November December 101213161923263028181614(1 x 10 + 2 x 12 + 3 x 13) / 6 =12.16(1 x 12 + 2 x 13 + 3 x 16) / 6 =14.33(1 x 13 + 2 x 16 + 3 x 19) / 6 = 17(1 x 16 + 2 x 19 + 3 x 23) / 6 =20.5(1 x 19 + 2 x 23 + 3 x 26) / 6 =23.83(1 x 23 + 2 x 26 + 3 x 30) / 6 =27.5(1 x 26 + 2 x 30 + 3 x 28) / 6 =28.33(1 x 30 + 2 x 28 + 3 x 18) / 6 =23.33(1 x 28 + 2 x 18 + 3 x 16) / 6 =18.67In this particular forecasting situation, you can see that weighting the latestmonth more heavily provides a much more accurate projection.
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