Types of Forecasting method....................................................................................................................

2
1. Under Qualitative methods............................................................................................................2
2. Under Quantitative methods..........................................................................................................2
 Naïve Approach...............................................................................................................................2
 Moving Average..............................................................................................................................2
 Weight Moving Average.............................................................................................................3
 Exponential Smoothing...................................................................................................................4
 Exponential Smoothing with Trend Adjustment............................................................................5
 Trend Projections............................................................................................................................7
 Linear regression.............................................................................................................................9
Types of Forecasting method
1. Qualitative methods
2. Quantitative methods

1. Under Qualitative methods

 Jury of Executive Opinion
 Sales force composite
 Consumer Market survey
 DELPHI method

2. Under Quantitative methods

 Naive approach
 Moving averages
 Exponential smoothing
 Trend projection
 Linear regression

 Naïve Approach
Assumes demand in next period is the same as demand in most recent period. e.g., If January Demand
were 320, then February sales will be 320 for a Product. Sometimes cost effective and efficient.

 Moving Average
Forecast based on an average of recent values. It is a series of arithmetic means.

Moving Average=
∑ Demand ∈previous N period
N
In 2018 the actual services provided to the customer from January to December are listed below. The
forecasting for 2019 from January to December on the base on Moving Average of 3 month is calculated.

Month Demand Moving average

Janaury 320 404
February 410 427
March 480 447
April 390 454
May 470 427
June 500 414
July 310 370
August 430 430
September 370 412
October 490 427
November 375 395
December 415 415
Graph of the above Data

Moving Average
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Demand moving Average of 3 month

 Weight Moving Average

Forecast based on a moving average with weights that vary. It is used when some trend might be present .
In this trend older data usually less important, hence given less weighted.

Weight moving average=

∑ (Weight for period n¿)×(demand∈ period n) ¿
∑ Weights
In 2018 the actual services provided to the customer from January to December are listed below. The
forecasting for 2019 from January to December on the base on Moving Average of 3 month is calculated.

Month Demand 3 month weighted average

Janaury 320 430
February 410 424
March 480 445
April 390 472
May 470 400
June 500 402
July 310 380
August 430 440
September 370 413
October 490 415
November 375 415
December 415 415
   Weight Applied Period
  1 Last month
  2 Previous
  3 Recent
Total weighted 6  

Graph of above Data

Weight Moving Average

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Demand 3 month weight average

 Exponential Smoothing
In this forecasting method every new forecast is equal to the previous forecast plus a percentage of the
previous error.This method of forecasting depend upon the previous forecasting. Smoothing constant
Alpha is used in this method.

Today forecast=Forecast of yesterday + Alpha * Forecasting Error

Ft=Ft-1 +ꭤ(At-1 –Ft-1)

Forecasting Error= At −1−Ft −1

In 2018 the actual services provided to the customer from January to December are listed below. The
forecasting for 2019 from January to December on the base on Exponential Smoothing is calculated.
Month Actual Forecasting with ꭤ=.7
 January 320 350
February 410 329
March 480 386
April 390 452
May 470 409
June 500 452
July 310 486
August 430 363
September 370 410
October 490 382
November 375 458
December 415 400

Graph of above data

Exponential Smoothing
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Actual New Forecasting with ꭤ=.7

 Exponential Smoothing with Trend Adjustment

When a trend is present, exponential smoothing must be modified to respond to trend Forecasting.

Forecast including = trend Exponentially Exponentially smoothed + smoothed forecast trend

(FITt) = (Ft) (Tt)
Ft = ꭤ(Actual Demand last period) + (1 - ꭤ)(Forecast last period + Trend estimate last period)
Ft = ꭤ(At-1) + (1 - ꭤ)(Ft-1 + Tt-1)
Tt = ẞ(Forecast this period - Forecast last period) + (1 - ẞ)(Trend estimate last period)
Tt = ẞ(Ft - Ft-1) + (1 - ẞ)Tt-1
Ft = exponentially smoothed forecast of the data series in period t

Tt= exponentially smoothed trend in period t

At= Actual demand in period t
ꭤ= smoothing constant for the average
ẞ= smoothing constant for the trend
In 2018 the actual services provided to the customer from January to December are listed below. The
forecasting for 2019 from January to December on the base on Exponential Smoothing with Trend
adjustment is calculated.

Smoothed Smoothed
Month Actual Forecast Trend Forecast Including Trend
January 320 350 10 360
February 410 336 3 339
March 480 382 16 398
April 390 447 31 478
May 470 425 15 440
June 500 458 21 479
July 310 492 25 517
August 430 393 -13 380
Septembe
r 370 410 -4 406
October 490 385 -11 374
November 375 444 11 455
December 415 407 -4 403

smoothing constant for the average(ꭤ) 0.6

smoothing constant for the trend(ẞ) 0.3

Graph of above data

 Exponential Smoothing with trend
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Actual Forecast Including Trend

 Trend Projections
The last time series forecasting method. This technique fits a trend line to historical data points to
project into the medium to long-range forecasts. Linear trends can be found using the least squares
technique.

^y =a+bx
Where

^y = computed value of the variable to be predicted (dependent variable)

a = y-axis intercept

b = slope of the regression line(or the rate of change in y for a given changes in x)

x = the independent variable

Equations to calculate the regression variables

^y =a+bx

b=
∑ xy−n x́ ý
∑ x 2−n x´2
a= ý−b x́

Where,

b = slope of regression line

∑=Summation sign
x = known values of the independent variable
y = known values of the dependent variable
x́ = average of the x- values
ý = average of the y- values

n = number of data points or observations

In 2018 the actual services provided to the customer from January to December are listed below. The
forecasting for 2019 from January to December on the base on least square method.

Month Time(X) Actual(Y) x2 XY

January 1 320 1 320
February 2 410 4 820
March 3 480 9 1440
April 4 390 16 1560
May 5 470 25 2350
June 6 500 36 3000
July 7 310 49 2170
August 8 430 64 3440
Septemb
er 9 370 81 3330
October 10 490 100 4900
Novembe
r 11 375 121 4125
Decembe
r 12 415 144 4980
2
∑ x =¿65 ∑ xy =¿ ¿32
n=12 ∑X=78 ∑Y=4960 0 435
ý=¿413.33
  x́ =6.5 33    

b=1.3636
a=404.46
y=404.46+1.36x
Graph of above data

Trend Projection
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Time(X) Actual(Y) Linear (Actual(Y))

 Linear regression
All above method are time series models but the linear regression method is associative models. This
models also used the least square methods to calculate the forecasting. An other method to calculate
the linear regression by using correlation coefficient. The correlation coefficient lies between -1 to 1.

r=-1 represent the decreasing but less scatter

r=0 represent more scatter

0<r<1 represent the increasing but scatter

r=1 represent the increasing but less scatter

Actual
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Our data is increasing and scatter.