If you can look into the seeds of time,

and say which grain will grow and

which will not
speak then unto me.
William Shakespeare, 1564-1616.

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 Exponential Smoothing

Ft 1  Ft  α( At  Ft )

Ft 1  Ft  αAt  αFt
Ft 1  (1  α) Ft  αAt

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 1-2. Short Questions and Multiple Choices
1. Given an actual demand of 60 for a period when forecast of 70
was anticipated, and an alpha of 0.3, what would the forecast for
the next period be using simple exponential smoothing?

F = (1-0.3)(70)+0.3(60) = 67

2. Suppose you have been asked to generate a demand forecast for

a product for year 2012 using an exponential smoothing method.
The forecast demand in 2011 was 910. The actual demand in 2011
was 850. Using this data and a smoothing constant of 0.3, which of
the following is the demand forecast for year 2012?
A) 850
B) 885
C) 892
D) 925 F = (1-0.3)(910)+0.3(850) = 892
E) 930
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 3.Short Questions and Multiple Choices
3. Given the following demand
Suppose the forecast for period 2 is equal to the actual for period
1. What is your forecast for period 4 using exponential smoothing
and α=0.5? Period
1
Demand
300
A) 300 2
3
500
600
B) 400
C) 500
D) 550
E) none of the above F = (1-α)F + α(A )
t+1 t t
Ft+1 = (1-0.5)Ft+ 0.5(At)
Ft+1 = (1/2) Ft+ (1/2) (At)
Ft+1 = (Ft+At)/2
F3 = (F2+A2)/2
F3 = (300+500)/2= 400
F4 = (F3+A3)/2 = (400+600)/2 = 500 4
 4-5. Short Questions and Multiple Choices
4. Use exponential smoothing to forecast this period’s demand if 
= 0.2, previous actual demand was 30, and previous forecast was
35.
A) 29
B) 31
C) 34 F = (1-0.2)(35)+0.2(30) = 34
D) 36
E) 37
5. Exponential smoothing is being used to forecast demand.
The previous forecast of 66 turned out to be 5 units larger
than actual demand. The next forecast is 65. Compute ?

F(t+1) = Ft +  (At-Ft)
65 66 +5
-5
65 = 66 +  (-5) 5=1  = 0.2
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 6. Short Questions and Multiple Choices
6. The president of State University wants to forecast student
enrollments for the next academic year based on the following
historical data for the past 5 years. What is your forecast for next
year using exponential smoothing with α = 0.4?

α= 0.4
t At Ft |E| MAD
1 15000 15000 =B3 0 0
2 16000 15000 =(1-$C$1)*C3+$C$1*B3 1000 500
3 18000 15400 =(1-$C$1)*C4+$C$1*B4 2600 1200
4 20000 16440 =(1-$C$1)*C5+$C$1*B5 3560 1790
5 21000 17864 =(1-$C$1)*C6+$C$1*B6 3136 2059.2
19118.4 =(1-$C$1)*C7+$C$1*B7 2574

Forecast Mean 19118

Forecast StdDev 2574
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 7-8. Short Questions and Multiple Choices
7. For what value of α, exponential smoothing becomes naïve
method?
A) α =0 Ft+1 = (1-α)Ft+ α(At)
B) α =0.25 Ft+1 = (At)
C) α =0.5
Ft+1 = (1-1)Ft+ 1(At)
D) α =0.75
E) α =1

8. For what value of α, exponential smoothing becomes a straight

line?
A) α =0 Ft+1 = (1-α)Ft+ α(At)
B) α =0.25 Ft+1 = Ft
C) α =0.5
D) α =0.75 Ft+1 = (1-0)Ft+ 0(At)
E) α =1

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 9-10. Short Questions and Multiple Choices
9. A forecast based on the previous forecast plus a percentage of
the forecast error is:
A) a naive forecast
B) a simple moving average forecast
F = (1-α)Ft+ α(At)
C) a centered moving average forecast t+1
D) an exponentially smoothed forecast Ft+1 = Ft+ α(At-Ft )
E) an associative forecast

10. In exponential smoothing forecasting, using large values of the

smoothing coefficient  generates forecasts that are more:
A) accurate
B) responsive
C) random Ft+1 = (1-α)Ft+ α(At)
D) stable
E) level

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 Lecture of Problems 11a &11b.
https://www.youtube.com/watch?v=2OkoBbEm10I&t=9s

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 11a. Exponential Smoothing-Alpha using Data Table
α= 0.4 0 0.1
t At Ft E |E| MAD TS 1.25
1 19 19.00 0.00 0.00 0.00 #DIV/0! 0 1.28571
2 18 19.00 -1.00 1.00 0.50 -2.00 0.1 1.24839
3 21 18.60 2.40 2.40 1.13 1.24 0.2 1.22107
4 20 19.56 0.44 0.44 0.96 1.92 0.3 1.20159
5 18 19.74 -1.74 1.74 1.12 0.09 0.4 1.25134
6 22 19.04 2.96 2.96 1.42 2.15 0.5 1.30804
7 20 20.22 -0.22 0.22 1.25 2.27 0.6 1.36398
0.7 1.47358
0.8 1.59913
0.9 1.7278
1 1.85714
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11b. Exponential Smoothing-Find Alpha Using Solver
α= 0.4
t At Ft E |E| MAD
1 19 19.00 0.00 0.00 0.00
2 18 19.00 -1.00 1.00 0.50
3 21 18.60 2.40 2.40 1.13
4 20 19.56 0.44 0.44 0.96
5 18 19.74 -1.74 1.74 1.12
6 22 19.04 2.96 2.96 1.42
7 20 20.22 -0.22 0.22 1.25

α= 0.31111
t At Ft E |E| MAD
1 19 19.00 0.00 0.00 0.00
2 18 19.00 -1.00 1.00 0.50
3 21 18.69 2.31 2.31 1.10
4 20 19.41 0.59 0.59 0.98
5 18 19.59 -1.59 1.59 1.10
6 22 19.10 2.90 2.90 1.40
7 20 20.00 0.00 0.00 1.20
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 12. Short Questions and Multiple Choices
11. It can be mathematically proved that the Age of data in
exponential smoothing is 1/α . The larger the α, the larger the
number of periods in the moving average. True or false? Why?
False
α = 0.5  age of data is 2 periods.
α = 0.2  age of data is 5 periods.
α = 0.1  age of data is 10 periods.

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 13-14. Short Questions and Multiple Choices
13. Given a forecast using a 6 period moving average. What is the
average age of data?
The last piece (newest piece) of data is only 1 period old.
The first piece (oldest piece) of data in a 6 period moving average
is 6 periods old.
The average age of data is (1+6)/2 = 3.5

14. If the age of data in exponential smoothing is 1/ α, for what

value of α, exponential smoothing performs close to a six period
moving average?
The age of data in a 6 period moving average is 3.5.
The age of data in exponential smoothing is 1/ α.
1/ α = 3.5
α = 1/3.5
α = 0.29

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15. Problem
Given the following demand data
Month Feb Mar Apr May Jun Jul Aug
Demand 19 18 15 20 18 22 20
At
25

a) Draw the data 20

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b) Provide forecasts for the next 10

period using ES and α=0.2, 5

compute MAD, compute 0

0 1 2 3 4 5 6 7 8

standard deviation of your

α= 0.2
forecast. t At Ft |E| MAD
1 19 19.0 =B3 0 0.0
2 18 19.0 =(1-$C$1)*C3+$C$1*B3 1.0 0.5
3 15 18.8 =(1-$C$1)*C4+$C$1*B4 3.8 1.6
4 20 18.0 =(1-$C$1)*C5+$C$1*B5 2.0 1.7
5 18 18.4 =(1-$C$1)*C6+$C$1*B6 0.4 1.4
6 22 18.3 =(1-$C$1)*C7+$C$1*B7 3.7 1.8
7 20 19.1 =(1-$C$1)*C8+$C$1*B8 0.9 1.7
19.3 =(1-$C$1)*C9+$C$1*B9
Forecast Mean= 19
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Forecast StdDev= 2.10
 Problem 1
c) Provide forecasts for the next period using 5-period MA.
Based on MAD, which method is better? ES or MA?

2 18 19.0
3 15 18.8
4 20 18.0
5 18 18.4
6 22 18.3 18.0 4 4 3.65 3.65
7 20 19.1 18.6 1.4 2.7 0.92 2.29
19.3 19.0

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15. Problem
d) Provide forecasts for September using Naïve method (forecast
of the next period is the same as the actual for this period).
Based on MAD, which method is better? ES or NM?
α= 0.2
t At Ft (ES) Ft(NM) |E|(NM) MAD(NM) |E|(ES) MAD(ES)
1 19 19.0
2 18 19.0 19 1 1 1.0 1.00
3 15 18.8 18 3 2 3.8 2.40
4 20 18.0 15 5 3 2.0 2.25
5 18 18.4 20 2 2.75 0.4 1.80
6 22 18.3 18 4 3 3.7 2.17
7 20 19.1 22 2 2.83 0.9 1.96
19.3 20

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15. Problem
e) Provide forecasts and standard deviation of forecast for
September using linear Regression. Also Compute R-Squared
(Coefficient of determination) and Correlation Coefficient.
t At
1 19 17.4 Intercept 16.86 =INTERCEPT($B$3:$B$9,$A$3:$A$9)
2 18 17.9 Slope 0.5 =SLOPE($B$3:$B$9,$A$3:$A$9)
3 15 18.4 R-Squared 0.24 =RSQ($B$3:$B$9,$A$3:$A$9)
4 20 18.9 CC 0.49 =CORREL($B$3:$B$9,$A$3:$A$9)
5 18 19.4 StdDevOfForc 2.1 =STEYX($B$3:$B$9,$A$3:$A$9)
6 22 19.9 F8 20.86
7 20 20.4
8 20.9
9 21.4
10 21.9
11 22.4

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 (f) Which Technique ?
When comparing several methods, we need to use the same
time horizon for all methods. We need to have actual as well as
forecasts for all methods for all periods of MAD computations
Here we have Actual for periods 1 to 7; that is 7 periods.
Regression can provide us with forecast for periods 1 to ∞
Five period moving average can only provide forecast for
periods 6 and 7; that is 2 periods
Therefore, to compare all these methods, we can compute MAD
only over 2 periods. But two periods is not enough.

Naïve Method or Exponential Smoothing ?

Naïve method forecasts for periods 2 to 7; That is 6 periods
Exponential Smoothing for periods 2 to 7; That is 6 periods
We can compare NM and ES over 6 periods.

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