FORECASTING Solving for the forecast for 2010 given that the

expected annual demand is 1,200. Kung ano yung

 SEASONAL VARIATIONS IN DATA
season ng data, dapat yung forecast should be of
 The multiplicative seasonal model can
the same season as well. Kaag ang expected
adjust trend data for seasonal variations
demand is given in a time basis na iba doon sa
in demand
season, we have to convert the annual demand
STEPS IN THE PROCESS: into monthly demand.

1. Find average historical demand for each NOTE: Dapat tugma sa season ng given problem.
season.
Seasons can vary from daily, weekly,
monthly, quarterly, etc.
2. Compute the average demand over all
seasons.
3. Compute a seasonal index using the
following formula:

FOLLOW-UP QUESTION: Determine the forecast

4. Estimate next year’s total demand.
5. Divide this estimate of total demand by the
number of seasons, then multiply it by the
seasonal index for that season.
Example:
for June if the expected demand for 2010 is 360
per quarter.
Since monthly ang SI natin at quarterly naman ang
hinahanap, we have to convert it into monthly
units.

The following table shows the monthly demand

from 2007 to 2009. Determine the seasonal index
and the forecast for 2010 is expected to be 1,200
units.

In 1 quarter, always remember that there are 3

months. In 1 year, there are 4 quarters.

NOTE: We usually use 3 decimal places when we

are computing for the seasonal index. Once we’re
done with the SI, we can now proceed to forecast.
 - This behavior can be observed sa last
FORECASTING
few values of the data set. So from
QUANTITATIVE APPROACHES there, you will know kung i-a-add or i-
ma-minus mo siya depending on the
TIME-SERIES MODELS trend.
1. NAÏVE APPROACH
2. MOVING AVERAGES - Pag increasing, add. Pag decreasing,
3. EXPONENTIAL SMOOTHING minus.
4. TREND PROJECTION
- Take note that the difference is the
ASSOCIATIVE MODEL absolute difference of the last 2 values
5. LINEAR REGRESSION of the series
************************************* ************************************
1. NAÏVE APPROACH EXAMPLE:
STABLE SERIES
- Variations around an average The following data shows the daily sales in dozen
for each of the 3 products of a commercial bakery.
- The last data point becomes the Determine the forecast for the 12th day using naïve
forecast for the next period approach.

TIP: Si naïve approach, we only need to look closely

- The data are very close to each other
and observe the given data values.
kaya the forecast for the next period is
the same as the value of the previous SET 1:
period

SEASONAL VARIATIONS
- The forecast for this “season” is equal
to the value of the series last “season.

- Kapag may mga peak values sa data,

ibig sabihin, the values are seasonal.

- They should appear every fixed

interval.

We can only assume that the data set is stable if

- Example: every 5 months, 2 weeks, and
magkakalapit-lapit ang values natin. Since the last
so on.
value is 17, the forecast for the 12th day is also 17.
TREND
- The forecast is equal to the last value
of the series plus or minus the F12 = 17 dozens of cookies
difference between the last 2 values of
the series.
So, 17 dozens of cookies are projected to be sold
- Makikita naman if the data is on day 12.
continuously tumataas or bumababa.
SET 2:

This can be noticed on Day 4 and 8. Meaning to

say, nag-pi-peak ang behavior every 4 days.

The last 4 values are increasing, so, we can assume

that this is a trend. Unlike kasi kay cookies, medyo
erratic ang value niya pero close parin to each
other.
2. AVERAGING TECHNIQUES
We always make use of the most recent
So on days 8. 9, 10, and 11, pataas ng pataas ang values.
value natin.
MOVING AVERAGE
- this averages a number of recent
F12 = 23 + (23-22) actual values, updated as new values
become available.
= 24 dozens of muffin
WEIGHTED MOVING AVERAGE
- There are weights involved
Based on the formula, yung last value of the - Used when some trend might be
previous date plus (kasi nga trend tayo at present
increasing pa) the absolute difference of the last 2 - Weights are based on experience and
values of the data. intuition

SET 3:

- NOTE: Most recent values are given

more weight in computing a forecast.
Weights can be given as a percentage,
equal to 1, or as a whole number,
depends on the problem. Kahit naka-
jumble ang weight, the heaviest weight
 is always assigned to the most recent SET 2:
value/data in our given problem.

FORMULA:

EXPONENTIAL SMOOTHING
- A method based on previous forecast
plus a percentage of the forecast error.

SET 3:

Yung alpha smoothing constant, it can range

between 0 and 1.

************************************

EXAMPLE SET 1:

NOTE: We cannot forecast the 7th day and so on.

This is due to the fact that we need to have an
actual forecast value.

FORECASTING: Exponential Smoothing w/ trend

adjustment
  When a trend is present, exponential
smoothing must be modified.

FORMULA:

Exponentially smoothed forecast

+ Exponentially smoothed trend____

Forecasting including trend

----------------------OR-----------------------

FITt = Ft + Tt

ACTUAL FORMULA:
FORECASTING: Measures of Error and Tracking
Signal

COMMON MEASURES OF ERROR

1. MEAN ABSOLUTE DEVIATION (MAD)
2. MEAN SQUARED ERROR (MSE)
3. MEAN ABSOLUTE PERCENT ERROR (MAPE)

FORMULAS:

Example: Determine the forecast for period 6 using

exponential smoothing w/ trend adjustment (β) if
the forecast for period 1 is 11, and the trend is 2.
Use the α = 0.20 and β = 0.40/

NOTE: Laging given yung forecast and yung trend.

MAD NOTE: Forecast Error can be negative or
positive. After computing the forecast error, the
results will be in an absolute value.
MSE NOTE: Forecast Error is only squared.
MAPE NOTE: It is the summation of Forecast Error
over actual trend. Percentage ito.
Example Set 1:
Determine how reliable the forecast results based
ono the following data using the following:
NOTE: Yung measures of error is ginagamit para
malaman kung gaano kalayo yung forecasted value
sa actual value.
Analyzing the problem and solution, the
forecasting error is already high kasi usually we
only want the maximum 5% error. It means that
the forecasting in this situation is not reliable.
*************************************
 TRACKING SIGNAL
 Measures how well the forecast is in
predicting actual values.
 It is the ratio of cumulative forecast errors
to mean absolute deviation (MAD).
 Good tracking signal has LOW VALUES
 If forecasts are CONTINUALLY high or low,
the forecast has a BIAS ERROR.
Example Set 2: