This document discusses various methods for short-term forecasting. It describes forecasting horizons from long-term to short-term and the types of planning involved. Short-term forecasting needs include scheduling resources, acquiring additional resources, and determining what resources are needed. The document then discusses types of forecasting models including qualitative and quantitative models as well as naive and formal time series methods. Various demand forecasting methods and statistical techniques for time series analysis are outlined, including trend analysis, moving averages, exponential smoothing, and time series decomposition. Metrics for evaluating forecast accuracy like mean forecast error, mean absolute deviation, and mean squared error are also presented.
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This document discusses various methods for short-term forecasting. It describes forecasting horizons from long-term to short-term and the types of planning involved. Short-term forecasting needs include scheduling resources, acquiring additional resources, and determining what resources are needed. The document then discusses types of forecasting models including qualitative and quantitative models as well as naive and formal time series methods. Various demand forecasting methods and statistical techniques for time series analysis are outlined, including trend analysis, moving averages, exponential smoothing, and time series decomposition. Metrics for evaluating forecast accuracy like mean forecast error, mean absolute deviation, and mean squared error are also presented.
This document discusses various methods for short-term forecasting. It describes forecasting horizons from long-term to short-term and the types of planning involved. Short-term forecasting needs include scheduling resources, acquiring additional resources, and determining what resources are needed. The document then discusses types of forecasting models including qualitative and quantitative models as well as naive and formal time series methods. Various demand forecasting methods and statistical techniques for time series analysis are outlined, including trend analysis, moving averages, exponential smoothing, and time series decomposition. Metrics for evaluating forecast accuracy like mean forecast error, mean absolute deviation, and mean squared error are also presented.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
This document discusses various methods for short-term forecasting. It describes forecasting horizons from long-term to short-term and the types of planning involved. Short-term forecasting needs include scheduling resources, acquiring additional resources, and determining what resources are needed. The document then discusses types of forecasting models including qualitative and quantitative models as well as naive and formal time series methods. Various demand forecasting methods and statistical techniques for time series analysis are outlined, including trend analysis, moving averages, exponential smoothing, and time series decomposition. Metrics for evaluating forecast accuracy like mean forecast error, mean absolute deviation, and mean squared error are also presented.
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Project Planning and
Management (EG853ME) Ram C. Poudel Pulchowk Campus November 1, 2009 Forecasting Horizons Long Term 5+ years into the future R&D, plant location, product planning Principally judgement-based Medium Term 1 season to 2 years Aggregate planning, capacity planning, sales forecasts Mixture of quantitative methods and judgement Short Term 1 day to 1 year, less than 1 season Demand forecasting, staffing levels, purchasing, inventory levels Quantitative methods Short Term Forecasting: Needs and Uses Scheduling existing resources NEA for Load Dispatch Center Acquiring additional resources How much power stations needs to be added? Determining what resources are needed Renewable Energy Nuclear Energy Types of Forecasting Models Types of Forecasts Qualitative --- based on experience, judgement, knowledge; Quantitative --- based on data, statistics;
Methods of Forecasting Naive Methods --- eye-balling the numbers; Formal Methods --- systematically reduce forecasting errors; time series models (e.g. exponential smoothing); causal models (e.g. regression). Focus here on Time Series Models Assumptions of Time Series Models There is information about the past; This information can be quantified in the form of data; The pattern of the past will continue into the future. Methods of demand forecasting 1. Jury of expert’s opinion 2. Delphi method: Individual experts act separately 3. Consumer’s Survey 4. Sales forecast composite 5. Naïve models 6. Smoothing techniques a. Moving average b. Exponential smoothing 7. Analysis of time series and trend projections 8. Use of economic indicators 9. Controlled experiments 10. Judgemental approach Approach to forecasting 1. Identify and clearly state the objectives of forecasting. 2. Select appropriate method of forecasting. 3. Identify the variables. 4. Gather relevant data. 5. Determine the most probable relationship. 6. For forecasting the company’s share in the demand, two different assumptions may be made: (a) Ratio of company sales to the total industry sales will continue as in the past. (b) On the basis of an analysis of likely competition and industry trends, the company may assume a market share different from that of the past. (alternative / rolling forecasts) 7. Forecasts may be made either in terms of units or sales in rupees. 8. May be made in terms of product groups and then broken for individual products. 9. May be made on annual basis and then divided month-wise, etc. Statistical Methods Trend Analysis Curve fitting Moving Average method Weighted moving average method Exponential smoothing method (w/ Trend and Seasonality) Time Series decomposition method Curve Fitting Method of Least Squares: Principle of maxima and minima
Find the value of m and b that minimize the sum of square of
residuals. How do we know how good the fit is? Correlation Coefficient, R2 60
50 y = 9x - 17.333 R2 = 0.9743 40
30
20
10
0 0 2 4 6 8 Simple Moving Average Forecast Ft is average of n previous observations or actuals Dt : Note that the n past observations are equally weighted. 1 Ft +1 = ( Dt + Dt −1 + + Dt +1−n ) Issues with moving average forecasts: n All n past observations treated equally; Observations older than n are not included at all; t Requires that1 ∑ n past observations be retained; Problem = 1000's Ft +1 when Ditems of i are being forecast. n i =t +1−n Simple Moving Average Include n most recent observations Weight equally Ignore older observations
weight
1/n
n ... 3 2 1 today Moving Average
n= 3 Exponential Smoothing I Include all past observations Weight recent observations much more heavily than very old observations:
weight Decreasing weight given to older observations
today Exponential Smoothing: Concept Include all past observations Weight recent observations much more heavily than very old observations: 0<α <1 weight Decreasing weight given α to older observations α (1 − α ) α (1 − α ) 2
α (1 − α ) 3
today Exponential Smoothing: Math Ft =αDt +α(1 −α) Dt −1 +α(1 −α) Dt −2 + 2
Ft =αDt + (1 −α)[αDt −1 +α(1 − a ) Dt −2 +]
Ft = aD t + (1 − a ) Ft −1 Exponential Smoothing: Math Ft = aD t + a (1 − a ) Dt −1 + a (1 − a ) Dt −2 +2
Ft = aD t + (1 − a ) Ft −1 Thus, new forecast is weighted sum of old forecast and actual demand Notes: Only 2 values (Dt and Ft-1 ) are required, compared with n for moving average Parameter a determined empirically (whatever works best) Rule of thumb: α < 0.5 Typically, α = 0.2 or α = 0.3 work well Forecast for k periods into future is:
Ft +k = Ft Exponential Smoothing
α = 0.2 Complicating Factors Simple Exponential Smoothing works well with data that is “moving sideways” (stationary) Must be adapted for data series which exhibit a definite trend Must be further adapted for data series which exhibit seasonal and cyclic patterns Time Series Decomposition Approach Y = f(Xt) where Xt = f(Tt, St, Ct, Rt). The trend component (Tt) and Cyclic component (Ct) Seasonal Componet (St) Random component (Rt) of the series.
Attached Lecture Video from IIT,Delhi: Prof
Arun Kunda De-seasonalizing Time Series If the time series represents a seasonal pattern of L period, then by taking moving average Mt of L periods, we could get mean value for the year Thus Mt = Tt ×Ct, Tt by regression or inspection, linear, quadratic, exponential or other function Seasonality = Xt/Mt = St × Rt Averaging over same month removes Rt. Put them together and get the forecast. there is a way out... Forecasting Performance How good is the forecast? Mean Forecast Error (MFE or Bias): Measures average deviation of forecast from actuals.
Mean Absolute Deviation (MAD): Measures
average absolute deviation of forecast from actuals. Mean Absolute Percentage Error (MAPE): Measures absolute error as a percentage of the forecast. Standard Squared Error (MSE): Measures variance of forecast error Forecasting Performance Measures 1 n MFE = ∑( Dt − Ft ) n t =1 1 n MAD = ∑ Dt − Ft n t =1 100 n Dt − Ft MAPE = ∑ n t =1 Dt 1 n MSE = ∑( Dt − Ft ) 2
n t =1 Mean Forecast Error (MFE or Bias) 1 n MFE = ∑( Dt − Ft ) n t =1
Want MFE to be as close to zero as possible -- minimum bias
A large positive (negative) MFE means that the forecast is undershooting (overshooting) the actual observations Note that zero MFE does not imply that forecasts are perfect (no error) -- only that mean is “on target” Also called forecast BIAS Mean Absolute Deviation (MAD) 1 n MAD = ∑ Dt − Ft n t =1
Measures absolute error
Positive and negative errors thus do not cancel out (as with MFE) Want MAD to be as small as possible No way to know if MAD error is large or small in relation to the actual data Mean Absolute Percentage Error (MAPE)
100 n Dt − Ft MAPE = ∑ n t =1 Dt
Same as MAD, except ...
Measures deviation as a percentage of actual data Mean Squared Error (MSE)
Recognizes that large errors are disproportionately more “expensive” than small errors But is not as easily interpreted as MAD, MAPE -- not as intuitive Suggested Readings Lecture - 35 The Analysis of Time Series Prof. Arun Kanda ITT/Delhi Available at: Youtube.com Chapter 3 : Textbook (Page 60 ~ 76).
