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  • Forecasting Technique Time Series Analysis Forecasting Errors Using EXCEL

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    Mohammed Al-Ftesi
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    The document discusses various forecasting techniques including time series analysis methods like simple moving average, weighted moving average, and exponential smoothing. It provides an example to illustrate these techniques and calculates forecasting errors using mean absolute deviation. Regression analysis is also covered with assumptions, an example, and a review of the relevant formulas. Finally, the document provides guidance on using Excel for moving average, exponential smoothing, and regression forecasting methods.

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    Forecasting

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    The document discusses various forecasting techniques including time series analysis methods like simple moving average, weighted moving average, and exponential smoothing. It provides an example to illustrate these techniques and calculates forecasting errors using mean absolute deviation. Regression analysis is also covered with assumptions, an example, and a review of the relevant formulas. Finally, the document provides guidance on using Excel for moving average, exponential smoothing, and regression forecasting methods.

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    24 views7 pages

    Forecasting Technique Time Series Analysis Forecasting Errors Using EXCEL

    Uploaded by

    Mohammed Al-Ftesi
    The document discusses various forecasting techniques including time series analysis methods like simple moving average, weighted moving average, and exponential smoothing. It provides an example to illustrate these techniques and calculates forecasting errors using mean absolute deviation. Regression analysis is also covered with assumptions, an example, and a review of the relevant formulas. Finally, the document provides guidance on using Excel for moving average, exponential smoothing, and regression forecasting methods.

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    of 7

    Forecasting

    Forecasting technique
    Time series analysis
    Forecasting errors
    Using EXCEL
    Forecasting
    techniques (pg. 436 Exhibit 11.1)
    1.  Statistical (Time Series, Causal)
    2.  Judgement/Qualitative (Expert opinion, Market Survey, Delphi)

    Time series analysis


    1.  Simple moving average
    2.  Weighted moving average
    3.  Exponential smoothing
    4.  Regression analysis

    An Example

    Month Demand 3-month Moving 3-month Wt. Moving Exponential


    Average Average  Smoothing 

    (weights: 0.2, 0.3, 0.5) (alpha = 0.1)

    1 650      

    2 700     0.1*650+0.9*650
    = 

    650

    3 810     0.1*700+0.9*650 =

    655

    4 800 (650+700+810)/3 = 0.2*650+0.3*700+0.5*810 0.1*810+0.9*655


    = 
    720 = 
    670.5
    745

    5 900 (700+810+800)/3 = 0.2*700+0.3*810+0.5*800 0.1*800+0.9*670.5


    770 =  = 

    783 683.5

    6 700 (810+800+900)/3 = 0.2*810+0.3*800+0.5*900 0.1*900+0.9*683.5


    837 =  =
    705.2

    852

    7   (800+900+700)/3 = 0.2*800+0.3*900+0.5*700 0.1*700+0.9*705.2


    800 = =
     780 704.7

    Illustration
    Pg.472 Problem 2

    Exercise:

    pg473 Problem 9

    Forecasting errors
    Mean Absolute Deviation (MAD) (pg.448)
     

    An Example
     

    Demand 3-month Deviation Absolute


    Moving
    Average Deviation

    800 720 800-720 = 80 80

    900 770 900-770 = 130


    130

    700 837 700-837 = 137


    -137

    Sum of Absolute Deviation = 80+130+137 = 347

    MAD = 347/3 = 115.7


     

    Demand 3-month Wt. Deviation Absolute


    Moving
    Average Deviation

    800 745 800-745 = 55 55

    900 783 900-783 = 117


    117

    700 852 700-852 = 152


    -152

    Sum of Absolute Deviation = 55+117+152 = 324

    MAD = 324/3 = 108


     

    Demand Exponential Deviation Absolute


    Smoothing
    Deviation
    800 670.5 800-670.5 = 129.5 129.5

    900 683.5 900-683.5 = 216.5 216.5

    700 705.2 700-705.2 = -5.2 5.2


     
    Sum of Absolute Deviation =
    129.5+216.5+5.2 = 351.2
     
    MAD = 351.2/3 = 117.1
     
    Hence, the 3-mth weighted moving
    average has the lowest MAD and is the best forecast
    method among the three.
     

    Control limits for a range of MADs (Pg.450 Exhibit 11.11)

    Number of Accuracy
    MADs

    +/- 1 57%

    +/- 2 88.9%

    +/- 3 98.3%

    +/- 4 99.9%

    With 57% accuracy, the forecast demand for July using 3-mth Wt. Moving
    Average = 780 +/-
    108 (672 to 888)

    With 88.9% accuracy, the forecast demand for July using 3-mth Wt. Moving
    Average = 780+/-
    2*108 (564 to 996)

    Exercise:

    pg.471 Problem 3, 11

    Regression Analysis

    Assumptions
    1.  Linear -- the past data and future projections are fall about a
    straight line (least squares
    method: minimize the sum of squared forecast
    error)
    2.  Time is the independent variable, x

    Y = a + bx
    An example
     

      Month Profit (y) xy x2


    (x)

      1 31 31 1

      2 40 80 4

      3 30 90 9

      4 34 136 16

      5 25 125 25

      6 20 120 36

    Total 21 180 582 91

    Average 3.50 30.00 97.00 15.17

    b = (582-6*3.5*30)/(91-6*3.5*3.5) = -2.7

    a = 30-(-2.7)*3.5 = 39.6

    Y = 39.6 - 2.7x

    Coding the time variable to simplify computation (i.e., 

    Case 1: odd number of time elements


     

    Time Code

    January -2

    February -1

    March 0

    April 1

    May 2

    Case 2: even number of time elements


     
    Time Code

    January -3

    February -1

    March 1

    April 3

    If  then

    Example
     

      Month Profit (y) Code (x) x2 xy


      1 31 -5 25 -155
      2 40 -3 9 -120
      3 30 -1 1 -30
      4 34 1 1 34
      5 25 3 9 75
      6 20 5 25 100
    Total 21 180 0 70 -96
    Average 3.50 30.00 0.00 11.67 -16.00

    b = -96/70 = -1.4

    a = 30

    Y = 30 - 1.4x

    Forecasting error

    Standard error of estimate


    or

      Month (x) Profit (y) xy y2


      1 31 31 961
      2 40 80 1600
      3 30 90 900
      4 34 136 1156
      5 25 125 625
      6 20 120 400
    Total 21 180 582 5642

    = 5.25
    or
     
     

    = 5.25
     
     

    Number of Accuracy
    Syx

    +/- 1 68%

    +/- 2 95.5%

    +/- 3 99.7%

    Formula review (pg.466)

    Exercise:

    Pg.471 Problems 17

    Using Excel
    1.  Click Tools, Click Data Analysis
    2.  Choose Moving Average/Exponential Smoothing/Regression
     
    Method Parameter Excel Reminder
    terminology

    N-mth Moving N  Interval Output range should be one cell


    average lower than the input range

    Exponential 1-a Damping factor Output range should be at the same


    Smoothing row as the input range

    Regression a Intercept Label should be checked if you


    include the column heading
    in your
    b X variable or input ranges
    Label

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