Quantitative Forecasting

Techniques
 What are Quantitative Forecast

Quantitative forecast uses historical data and previous

experience to forecast sales!

It is believed that the pattern of sales in the past will

continue in the foreseeable future
 Moving Average
Moving average analyzes a set of data points by creating an
average of a subset at a time out of the entire set of data.
As a result of how this technique is calculated, it eliminates
fluctuation while creating a forecast.

Hence, moving average is very useful when there is a

fluctuation in the demand for a product.
 Moving Average Cont’d

Concepts to note when calculating moving average to make a

forecast:

1. Fluctuations- (Seasonal, Cyclical & Random)

2. Trends
Fluctuations

● Seasonal : regular repeated patterns during a year based on

seasonal changes.
● Cyclical: regular repeated patterns in the medium term due
to business cycle (economic changes)
● Random: unpredictable/irregular changes in data which
occur at any time/randomly.
Trends
 How to Calculate Moving Average

There are two distinct ways to calculate Moving Average:

1. Simple Moving Average (SMA)

2. Weighted Moving Average (WMA)
 Simple Moving Average (SMA)
SMA is calculated by adding all the months or years under
review and then dividing that solution by the total number of
months.

Formula=
 Applied Knowledge
Period Weeks Actual Sales
1 24 500
2 30 000
3 34 000
4 27 000
5 28 500
6 31 200
7 34 800
Forecast sales Forecast sales four Forecast Sales five
three weeks weeks weeks
(34000 + 30000 +
24500)/3=29 500
(27000+34000+300
00)/3= 30 333.33
(28500+27000+340
0)/3= 29833.33
(31200+28500+270
 Weighted Moving Average
In calculating Weighted Moving average, a weight/ percent is placed on each
figure to be added. The weighted average is calculated by multiplying the given
price by its associated weighting and totaling the values.

Formula=

N.B The weights used MUST always equal to 1 or 100% when added.
Additionally, the heaviest weight should be placed on the most recent data as it
is believed that the most recent past data will most likely have a heavier
bearing on future data.
Applied Knowledge
 Now you try! :)
Using the following weights (0.50, 0.30, & 0.20), forecast sales for week 4
if the previous three weeks’ data were as follows: Week 1 (6 000); Week 2
(9 000); and week 3 (12 000).
 Answer
Forecast = (0.50)(12 000) + (0.30)(9 000) + (0.20)(6 000)

= 6 000 + 2 700 + 1200

= 9 900
Calculate the THREE WEEK AND THE FOUR WEEK
forecast for sales given the actual data below.
WEEK ACTUAL SALES

1 3000

2 3400

3 3200

4 3500

5 2400

6 2800
Weighted Moving average

● Given the following weights ( 0.4, 0.3 and 0.2) use the
actual sales in the table above to calculate the WMA
for week five and week 6
Answer for three week forecast:

● Forecast for week four = (week 1+ week 2 + week 3)/ 3

= ($3000 + $3400 + $3200)/3 = $3200

● Forecast for week five = ($3500 + $3200 + $3400)/3 = $ 3366.67

● Forecast for week six = ($ 2400 + $3500 + $3200)/ 3 = 3033.33

Answer for FOUR WEEK FORECAST

● Forecast for week five = (week 1+ week 2 + week 3 + week 4)/ 4

= ($3000 + $3400 + $3200 + 3500)/4 = 3275

● Forecast for week six = ($ 2400 + $3500 + $3200 + 3400)/ 4 = $3125

 ADVANTAGES OF MOVING AVERAGE DISADVANTAGES OF MOVING AVERAGE

Eliminates data fluctuation when forecasting. A lot of past records has to be kept to aid in the
projections

Gives a clearer picture of trends than actual Complex relationships are not recognised in data
sales.

It is a fairly accurate forecasting technique Tends to lag trends in data.

Relatively easier to calculate than regression Calculations can become fairly complex
analysis. especially where there is no prior knowledge.
Factors Influencing the Choose of Forecasting
Technique:
● The extent to which information is available
● The required level of accuracy
● The time span of the sales forecast
● The stage of the products life cycle