LECTURE 4

FORECASTING
PROF. IRAH DIANNE NICOLAS

PAMANTASAN NG LUNGSOD NG MAYNILA

 FORECASTING

• It is a prediction, estimate or determination of what will occur in the future based

on a certain set of factors.
• The value being forecast may be sales, interest rates, funds, gross national product
(GNP), technological status, and others.
• The factors on which a forecast is based may be any of the following: past data,
opinion or judgement, company data, or perceived pattern related to time.
CATEGORIES OF FORECASTING IN TIME HORIZON

• Short-term Forecast – It covers one day to one year and are used mainly for short-run
control such as employment, purchasing, scheduling, sales and production rates.
• Intermediate-term Forecast – a period ranging from one season to one or two years and
is used for production schedules, revenues, cash flow and budget planning.
• Long-term Forecast - a forecast covers from two to five years or more like market
trends, technology, facilities expansion and general policy.
 FORECASTING TECHNIQUES

• Qualitative technique – it is based on qualitative data such as the collective opinion

of the sales force to forecast the future.
• Time Series Analysis – it is based solely on historical data accumulated over time.
• Causal Methods – a method that define as relationships among independent and
dependent variables in a system related equations.
FACTORS IN FORECASTING

• Trend – is the general movement or direction in the data.

• Seasonal Factors – factor in which variations of time series associated with a period.
• Cyclical Factors – factors applicable in longer-term regular fluctuations which make take
several years to complete.
• Random Factors – these are events that cannot be predicted with certainty but can
impact on the data.
 FORECASTING METHODS OR TIME SERIES
METHODS
• Simple Moving Average – is the un-weighted average of a consecutive number of data points. It is a
forecasting method simply eliminates the effects of seasonal, cyclical, and erratic fluctuations by getting
the historical data.
• Weighted Moving Average - is a time series forecasting method in which the most recent data are
heavier compared to later data. This is desirable to vary the weights given to historical data forecast
future demand or sales.
• Exponential Smoothing – refers to family of forecasting models that are very similar to weighted
moving average that weights the most recent past data more than the distant past data.
• Regression Analysis – is a simple statistical tool used to model the dependence of a variable on one
or more explanatory variables.
• Simple linear regression – is the least estimator of a linear regression model with a single predictor
(one independent variable). The least square model determines a regression equation by minimizing
the squares of the vertical distances between actual and predicted values of Y.
FORMULA:

• Simple Moving Average =

∑(𝒎𝒐𝒔𝒕 𝒓𝒆𝒄𝒆𝒏𝒕 𝒏 𝒅𝒂𝒕𝒂 𝒗𝒂𝒍𝒖𝒆𝒔)
𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒕𝒊𝒎𝒆 𝒑𝒆𝒓𝒊𝒐𝒅𝒔

• Weighted Moving Average

∑𝑵 𝑾 (𝑺)
• F = ∑𝑾
F = forecast of time periods
N = number of time periods
S = actual values
W = Weight Given
EXAMPLE:

1.COMPUTE FOR THE FORECAST ON 3-MONTH MOVING AVERAGE.

2. DETERMINE IF WE HAVE FOLLOWING WEIGHTS. 20%, 30% AND 50%.

Month 1 2 3 4 5 6 7 8 9 10 11
Motorcycles 60 70 50 90 10 80 150 70 110 150 130
SIMPLE LINEAR REGRESSION

Ŷ = 𝑏1 𝑋 + 𝑏0

𝑛 ∑𝑋𝑌 − ∑𝑋 (∑𝑌)
𝑏1 =
𝑛 ∑𝑥2 − ∑𝑋 2

𝑏0 = 𝑌ത − 𝑏1 𝑋ത
EXAMPLE:

BSA-4A has 10 students believes that there is a relationship between the hours spent in studying and
his/her score in the exam. To prove the claim, they gathered the following information from the group and
tabulated results are written below.
Student Hours Spent in Score in the Exam
Studying

A 2 60
B 3 63
A. Determine the regression equation. C 4 69
B. Determine the score of the exam if hours spent in D 4 78
studying is10.
E 4 79
F 6 80
G 6 85
H 7 91
I 7 93
J 7 96
 EXERCISE:

Period Demand
1 42

2 40

3 43

4 40

5 41

1. Compute for a three-period moving average forecast given demand for shopping carts for the last five periods.

2. Compute the weighted average forecast using a weight of .40 for the most recent period, .30 for the next
most recent, .20 for the next, and .10 for the next.
 EXERCISE:

The section head of 8 medical representatives believes that there is a relationship between the number of
contacts a medical representative has and his sales. To prove his claim, he gathered the following
information from his group and tabulated results are written below.
Medical Number of Sales (in thousands)
Representative Contacts
A 48 84

A. Determine the regression equation. B 25 34

B. Determine the estimated sales if 42 C 18 34
contacts are made. D 50 94
E 22 32
F 52 89
G 14 18
H 57 124
THANK YOU!!!

IDGN – PLMUN (MAN ECON AE11)