Salinas Savings and Loan - a Forecasting Case

Salinas Savings and Loan is proud of its long tradition in Topeka, Kansas. Begun by Teresita Salinas 13 years
after World War II, the S&L has bucked the trend of financial and liquidity problems that has plagued the
industry since 1985. Deposits have increaseed slowly but surely over theyears, despite recessions in 1960,
1983, 1988, 1991, and 2001. Ms Salinas believes it is necessary to have a long-range strategic plan for her f
irm including a 1-year forecast and preferably even a 5-year forecast of deposits. She examines the past
deposit data and also peruses Kansas's Gross State Product (GSP), over the same 44 years. (GSP is
analogous to Gross Natinal Product, GNP, but on the state level.) The resulting data are in the following table:

YEAR DEPOSITS a GSP b YEAR DEPOSITS a GSP b

1959 0.25 0.40 1981 6.20 2.50
1960 0.24 0.40 1982 4.10 2.80
1961 0.24 0.50 1983 4.50 2.90
1962 0.26 0.70 1984 6.10 3.40
1963 0.25 0.90 1985 7.70 3.80
1964 0.30 1.00 1986 10.10 4.10
1965 0.31 1.40 1987 15.20 4.00
1966 0.32 1.70 1988 18.10 4.00
1967 0.24 1.30 1989 24.10 3.90
1968 0.26 1.20 1990 25.60 3.80
1969 0.25 1.10 1991 30.30 3.80
1970 0.33 0.90 1992 36.00 3.70
1971 0.50 1.20 1993 31.10 4.10
1972 0.95 1.20 1994 31.70 4.10
1973 1.70 1.20 1995 38.50 4.00
1974 2.30 1.60 1996 47.90 4.50
1975 2.80 1.50 1997 49.10 4.60
1976 2.80 1.60 1998 55.80 4.50
1977 2.70 1.70 1999 70.10 4.60
1978 3.90 1.90 2000 70.90 4.60
1979 4.90 1.90 2001 79.10 4.70
1980 5.30 2.30 2002 94.00 5.00
a
in$ millions
b
in$ billions

a ) Using naïve approach, then moving average, with m = 3 and m = 5, then exponential smootihing with
a = .3, a = .5, and a = .7 (assume naïve for starting forcast in 1960), then trend analysis, and finally
regression analysis, discuss which forecasting model fits best for Salina's strategic plan.
b ) Justify the selection of one model over another. (Tip: Obtain measures of forecast error - BIAS, MAD,
MSE and MAPE and construct a tabulated comparative summary). Where possible, compute
the coefficients of correlation and determination and interpret the results.