Forecasting Module 3

By Sue B. Schou
Phone: 208-282-4608
Email: schosue@isu.edu

Learning Objectives

„ Make forecast models using Winter’s

Exponential Smoothing in Minitab
„ Make forecast models using
decomposition in Minitab
„ Determine best forecast model

Seasonal Data
„ Graph time series data to
ensure it is seasonal.
„ Make all possible forecast
models appropriate for the
data.
„ Compare the models using a
measure of forecast error.
„ Choose the best model.

1
Graph Data

Sales of Greeting Cards

3500

3000

2500

2000
sales

1500

1000

500

0
Quarter Q1 Q1 Q1 Q1 Q1 Q1
Year 1999 2000 2001 2002 2003 2004

Winter’s Exponential Smoothing

„ Do first Winter’s model with

default settings
„ Adjust the level, trend, and
seasonal options one at a time
looking for a lower MSD
„ Make sure choices are between
0 and 1

Winter’s Exponential Smoothing

2
Winter’s Exponential Smoothing

Winters' Method Plot for sales

Multiplicative Method
5000 Variable
A ctual
Fits
4000 Forecasts
95.0% PI

Smoothing C onstants
A lpha (lev el) 0.2
3000
Gamma (trend) 0.2
sales

Delta (seasonal) 0.2

Accuracy Measures
2000
MA PE 28.4
MA D 228.0
MSD 77897.5
1000

0
3 6 9 12 15 18 21 24 27
Index

Winter’s Exponential Smoothing

Winters' Method for sales

Multiplicative Method

Data sales
Length 24

Smoothing Constants

Alpha (level) 0.2

Gamma (trend) 0.2
Delta (seasonal) 0.2

Accuracy Measures

MAPE 28.4
MAD 228.0
MSD 77897.5

Forecasts

Period Forecast Lower Upper

25 2315.68 1756.98 2874.38
26 2103.34 1535.89 2670.79
27 2199.51 1622.30 2776.72
28 4172.06 3584.13 4759.99

Winter’s Exponential Smoothing

3
Winter’s Exponential Smoothing

Winters' Method Plot for sales

Multiplicative Method
5000 Variable
A ctual
Fits
4000 Forecasts
95.0% PI

Smoothing Constants
Alpha (level) 0.2
3000
Gamma (trend) 0.2
sales

Delta (seasonal) 0.9

A ccuracy Measures
2000
MA PE 24.8
MA D 173.9
MSD 61554.3
1000

0
3 6 9 12 15 18 21 24 27
Index

Winter’s Exponential Smoothing

Winters' Method for sales

Multiplicative Method

Data sales
Length 24

Smoothing Constants

Alpha (level) 0.2

Gamma (trend) 0.2
Delta (seasonal) 0.9
\
Accuracy Measures

MAPE 24.8
MAD 173.9
MSD 61554.3

Forecasts

Period Forecast Lower Upper

25 2398.80 1972.71 2824.89
26 2181.67 1612.57 2750.77
27 2369.18 1626.50 3111.87
28 3708.14 2778.26 4638.02

Decomposition

4
Decomposition
Time Series Decomposition Plot for sold
Multiplicative Model
Variable
4000 A ctual
Fits
Trend
Forecasts

3000 Accuracy Measures

MAPE 17.0
MAD 161.4
sold

MSD 41156.9
2000

1000

0
3 6 9 12 15 18 21 24 27
Index

Decomposition
Time Series Decomposition for sales Accuracy Measures

Multiplicative Model
MAPE 17.0
Data sales MAD 161.4
Length 24 MSD 41156.9
NMissing 0

Fitted Trend Equation

Forecasts
Yt = 10.1643 + 98.0933*t
Period Forecast
Seasonal Indices 25 2328.82
26 2060.88
Period Index
27 1926.01
1 0.94571
2 0.80485 28 4204.13
3 0.72442
4 1.52502

Comparing Models

Winter’s Decomposition
--------------------------------------
MAPE 24.8 17.0

MAD 173.9 161.4

MSD 61554.3 41156.9

5
Quiz Time

Which is the best model: decomposition

or Winter’s Exponential Smoothing?

Winter’s Decomposition
MSD 61554.3 41156.9

Answer

„ Decomposition provides the better

forecast model because it has the
lower mean square deviation.

Seasonal Data

„ Graph time series data to

determine the data is seasonal.
„ Make a Winter’s model and a
decomposition model.
„ Compare the models using
mean square deviation.
„ Choose the best model.

6
Minitab Instructions

„ Available on this website

– Winter’s Exponential Smoothing video
– Decomposition video
– Handouts of written instructions

Assignment

Located on the website:

- problems to work
- answers

Questions?

Statistics Lab located in BA 111

Hours: MW 4-6pm
TTH 3:15-5pm
F 12-2pm