# Chapter 3

Forecasting

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Components of a Time Series • • • • Trend component Cyclic component Seasonal component Irregular or Random .

Demand of computers at Amir’ shop Month Demand January 61 February 66 March 60 April 75 May 71 June 70 July 77 August 80 September 66 October 70 .

78 .M.A Forecast Forecast Error Squared Error January 61 February 66 March 60 April 75 (61+66+60)/3 = 62 13 169 May 71 (66+60+75)/3 = 67 4 16 June 70 69 1 1 July 77 72 5 25 August 80 73 7 49 September 66 76 -10 100 October 70 75 -4 16 November 75 72 3 9 December 67 70 -3 9 MSE=43.Month Demand S.

A Forecast .22 W.Month Demand Forecast Error Squared Error January 61 February 66 March 60 April 75 ( 3 × 60 ) + ( 2 × 66 ) + (1× 61) = 62 13 169 May 71 ( 3 × 75 ) + ( 2 × 60 ) + (1× 66 ) = 68 3 9 June 70 70 0 0 July 77 71 6 36 August 80 74 6 36 September 66 77 -11 121 October 70 72 -2 4 November 75 70 5 25 December 67 82 -5 25 3 + 2 +1 3 + 2 +1 MSE=47. M.

α)Ft where Ft+1= new forecast for period t+1 Ft = old forecast for period t Yt = actual figure for period t α = smoothing constant.Exponential smoothing: Mathematically: Ft+1= αYt+(1. 0≤ α ≤ 1 .

6 × 61) = 61 5 25 March 60 (0.10 Month .Demand Exponential Smoothing Forecast Forecast Error (α = 0.4 × 66) + (0.4) Squared Error January 61 61 (assumed) February 66 (0.4 × 61) + (0.4 × 60) + (0.6 × 63) = 62 13 169 May 71 67 4 16 June 70 69 1 1 July 77 69 8 64 August 80 72 8 64 September 66 75 -9 81 October 70 72 -2 4 November 75 71 4 16 December 67 73 -6 36 MSE=44.6 × 61) = 63 -3 9 April 75 (0.

23 0.0 60.5 43.α MSE 0.8 51.96 0.56 0.3 46.87 0.10 0.39 1.64 0.1 70.6 45.14 0.9 55.7 47.18 .4 44.2 52.25 0.

Chapter 3 Forecasting Lecture 2 .

F o r e Q T S M S o i mW m i m e u S c a e s t i n n t i t a r i eC sa g M t iQv e u u s D a el e a l i l p o T o r t e i n n T g d r e P n r od R j eP e c r g ot i r oj e n sc st i io o S e a s o n a l A d j u s v E i n x g p Ao n v e nr a t i g a e l S m o o t h i n g pe l ie g a h t e d .

Trend Projection Month January February March April May June July Demand 52 57 56 60 65 69 75 Forecast for the month of August. .

T9=8020 .44 T8=76.t Yt tYt t2 1 52 52 1 2 57 114 4 3 56 168 9 4 60 240 16 5 65 325 25 6 69 414 36 7 75 525 49 Σt = 28 ΣYt = 434 ΣtYt = 1838 Σt2 = 140 b1=3.64.50x100=7656. b0=47.

Trend and Seasonal Components: Step 1: Compute seasonal indexes (indices) Step 2: Deseasonalize the data. . Step3: Find out the trend for the deseasonalized data by trend projection and then forecast Step 4: Finally this forecasted figures have to be adjusted with the seasonal indexes.

.YEAR 1 2 3 QUARTER SALES (1000s) 1 3 2 9 3 6 4 2 1 4 2 11 3 8 4 3 1 5 2 15 3 11 4 3 Forecast for the four quarters in the Year 4.

component 5.36 6.67 6.50 0. Seasonal irreg.00 3 6 5.a.21 5.25 4 2 5.50 3 8 6.17 5.00 0. Centered m.72 6.25 2 2 11 6.75 1 4 6.a.13 1.38 1.75 .63 1.Year 1 Qtr 1 Sales (1000s) 3 2 9 4-qtr m.

62)/2 = 0.36 0.Quarter Seasonal -Irregular Component Values Seasonal Index 1 0.19 4 0.39 .62 (0.76 1.67 0.21 1.67+0.41 0.65 2 1.17 1.72 1.74 3 1.

1990 4 0.39 × (4/3.3929 .97)=1.65 × (4/3.97)=0.7531 3 1.97)=1.19 × (4/3.6649 2 1.97) = 0.The final seasonal indexes are as follows: Quarter Index 1 0.74 × (4/3.

393 0.63 8.199 0.Deseasonalization of the Time Series Simply divide the time series observations by the corresponding seasonal indexes. Year 1 2 3 Quarter 1 2 3 4 1 2 3 4 1 2 3 4 Yt 3 9 6 2 4 11 8 3 5 15 11 3 St 0.00 5.393 Yt/St 4.56 9.17 7.13 5.655 1.655 1.67 7.393 0.753 1.655 1.27 6.58 5.199 0.63 .63 7.199 0.753 1.11 6.09 6.753 1.

27 6.t 1 2 3 4 5 6 7 8 9 10 11 12 Total=78 Yt 4.09 6.5.69 61.63 7.13 5.56 572.63 8.67 7.55 37.58 10.26 15.67 85. b1 = 0.58 5.6225.87 91.62 46. b0 = 4. Y = 6.3933.00 20.47 tYt 4.36 30.066 .11 6.00 5.60 100.04 68.60 t2 1 4 9 16 25 36 49 64 81 100 121 144 650 t = 6.17 7.63 79.56 9.

966. T16=10.179. T14=9.359 .199 11949 16 10359 0.393 4071 T13=9. T15=9.Final forecast t Trend Seasonal Forecast Index Quarterly Forecast 13 9179 0.655 6012 14 9572 1.753 16780 15 9966 1.572.

Regression Analysis Adv (1000s) Sales (1000s) 4 23 7 49 9 48 13 58 16 61 Forecast for advertisement expenditure = $20.000 . b0 = 20 .x y xy x2 4 23 92 16 7 49 343 49 9 48 432 81 13 58 754 169 16 61 976 256 Σx = 49 Σy = 239 Σxy = 2597 Σx2 = 571 b1 = 2.2992 . y = 76423 .8062 . Correlation Coefficient x y xy x2 y2 4 23 92 16 529 7 49 343 49 2401 9 48 432 81 2304 13 58 754 169 3364 16 61 976 256 3721 Σx = 49 Σy = 239 Σxy = 2597 Σx2 = 571 Σy2 = 12319 r = 0.8939 . Qualitative Forecasting methods • • • • Jury of Executive Opinion Sales force composite Consumer market survey Delphi technique . 500. Labor costs at Taco Bell are approximately 30% of every sales dollar. 52% of demand occurs in the 3-hour lunch time. . Taco Bell achieved labor savings of over$40 million in the recent past by using the new labor management system of which forecasting model was an integral part. Annual sales revenue = \$4.6 billion.Taco Bell Number of outlets world-wide = 6.

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