Forecasting: To Accompany by Render, Stair, and Hanna Power Point Slides Created by Brian Peterson
Forecasting: To Accompany by Render, Stair, and Hanna Power Point Slides Created by Brian Peterson
Forecasting: To Accompany by Render, Stair, and Hanna Power Point Slides Created by Brian Peterson
Forecasting
To accompany
Quantitative Analysis for Management, Eleventh Edition,
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson
5.1 Introduction
5.2 Types of Forecasts
5.3 Scatter Diagrams and Time Series
5.4 Measures of Forecast Accuracy
5.5 Time-Series Forecasting Models
5.6 Monitoring and Controlling Forecasts
(a)
Sales appear to be
Annual Sales of Televisions
330 –
constant over time
250 –
Sales = 250
200 – A good estimate of
150 – sales in year 11 is
100 –
250 televisions
50 –
| | | | | | | | | |
0 1 2 3 4 5 6 7 8 9 10
Time (Years)
Figure 5.2a
(b)
420 – Sales appear to be
400 – increasing at a
Annual Sales of Radios
380 –
constant rate of 10
360 – radios per year
340 –
Sales = 290 + 10(Year)
320 –
A reasonable
300 –
estimate of sales in
280 –
year 11 is 400
| | | | |
0 1 2 3 4 5 6 7 8 9 10
| | | | |
radios.
Time (Years)
Figure 5.2b
200 –
accurate because
180 – of variation from
160 – year to year
Sales appear to be
140 –
increasing
120 –
A forecast would
100 – probably be a
| | | | | | | | | |
larger figure each
0 1 2 3 4 5 6 7 8 9 10 year
Time (Years)
Figure 5.2c
MAD
forecast error
n
MAD
4
5
forecast error 140
170
120
140
160
17.8
|140 – 120| = 20
|170 – 140| = 30
6 150 n 170 9 |150 – 170| = 20
7 160 150 |160 – 150| = 10
8 190 160 |190 – 160| = 30
9 200 190 |200 – 190| = 10
10 190 200 |190 – 200| = 10
11 — 190 —
Sum of |errors| = 160
MAD = 160/9 = 17.8
MSE
( error) 2
n
The mean absolute percent error:
error
actual
MAPE 100%
n
And bias is the average error.
Trend
Component
Seasonal Peaks
Actual
Demand
Line
Average Demand
over 4 Years
| | | |
Demand = T x S x C x R
The additive model:
Demand = T + S + C + R
Yt Yt 1 ... Yt n1
Ft 1
n
Where:
Ft 1 for time period t + 1
= forecast
= actualYtvalue in time period t
n = number of periods to average
Table 5.3
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Weighted Moving Averages
Weighted moving averages use weights to put
more emphasis on previous periods.
This is often used when a trend or other pattern is
emerging.
Ft 1
( Weight in period i )( Actual value in period)
( Weights )
Mathematically:
w1Yt w2Yt 1 ... w nYt n1
Ft 1
w1 w2 ... w n
ere
wi = weight for the ith observation
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 5-28
Wallace Garden Supply
ogram 5.1B
Program 5.1C
Ft 1 Ft (Yt Ft )
ere:
Ft+1 = new forecast (for time period t + 1)
Ft = pervious forecast (for time period t)
= smoothing constant (0 ≤ ≤ 1)
Yt = pervious period’s actual demand
Program 5.2
Tt 1 (1 )Tt ( Ft 1 FITt )
where
Tt = smoothed trend for time period t
Ft = smoothed forecast for time period t
FITt = forecast including trend for time
period t
α =smoothing constant for forecasts
= smoothing constant for trend
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Selecting a Smoothing Constant
Program 5.3
Yˆ b0 b1 X
Where
= predicted
Ŷ value
b0 = intercept
b1 = slope of the line
X = time period (i.e., X = 1, 2, 3, …, n)
Program 5.4A
Program 5.4B
Yˆ 56.71 10.54 X
Likewise for X = 9
Figure 5.4
Program 5.5
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Seasonal Variations
Recurring variations over time may
indicate the need for seasonal
adjustments in the trend line.
A seasonal index indicates how a
particular season compares with an
average season.
When no trend is present, the seasonal
index can be found by dividing the
average value for a particular season by
the average of all the data.
1,200 1,200
Jan. 0.957 96 July 1.117 112
12 12
1,200 1,200
Feb. 0.851 85 Aug. 1.064 106
12 12
1,200 1,200
Mar. 0.904 90 Sept. 0.957 96
12 12
1,200 1,200
Apr. 1.064 106 Oct. 0.851 85
12 12
1,200 1,200
May 1.309 131 Nov. 0.851 85
12 12
1,200 1,200
June 1.223 122 Dec. 0.851 85
12 12
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Seasonal Variations with Trend
When both trend and seasonal components are
present, the forecasting task is more complex.
Seasonal indices should be computed using a
centered moving average (CMA)
CMA approach.
There are four steps in computing CMAs:
1. Compute the CMA for each observation
(where possible).
2. Compute the seasonal ratio =
Observation/CMA for that observation.
3. Average seasonal ratios to get seasonal
indices.
4. If seasonal indices do not add to the number
of seasons, multiply each index by (Number
of seasons)/(Sum of indices).
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 5-61
Turner Industries
The following table shows Turner Industries’
quarterly sales figures for the past three years, in
millions of dollars:
QUARTER YEAR 1 YEAR 2 YEAR 3 AVERAGE
1 108 116 123 115.67
2 125 134 142 133.67
3 150 159 168 159.00
4 141 152 165 152.67
Average 131.00 140.25 149.50 140.25
Seasonal
Table 5.10 Definite trend pattern
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Turner Industries
To calculate the CMA for quarter 3 of year 1 we
compare the actual sales with an average quarter
centered on that time period.
We will use 1.5 quarters before quarter 3 and 1.5
quarters after quarter 3 – that is we take quarters
2, 3, and 4 and one half of quarters 1, year 1 and
quarter 1, year 2.
Table 5.11
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 5-65
Turner Industries
There are two seasonal ratios for each quarter so
these are averaged to get the seasonal index:
100 –
b1 = 2.34 b0 = 124.78
Develop a forecast using this trend and multiply
the forecast by the appropriate seasonal index.
Ŷ = 124.78 + 2.34X
= 124.78 + 2.34(13)
= 155.2 (forecast before adjustment for
seasonality)
Table 5.13
Program 5.6A
Program 5.6B
Yˆ a b1 X 1 b2 X 2 b3 X 3 b4 X 4
where
X1 = time period
X2 = 1 if quarter 2, 0 otherwise
X3 = 1 if quarter 3, 0 otherwise
X4 = 1 if quarter 4, 0 otherwise
Program 5.7A
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Using Regression with Trend
and Seasonal Components
Excel Output for
the Turner
Industries
Example Using
Multiple
Regression
Program 5.7B
MAD
forecast error
n
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Monitoring and Controlling Forecasts
Signal Tripped
Upper Control Limit Tracking Signal
+
Acceptable
0 MADs Range
–
Lower Control Limit
Time
Figure 5.6
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Monitoring and Controlling Forecasts
MAD
forecast error 85
14.2
n 6
RSFE 35
Tracking signal 2.5MADs
MAD 14.2
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Adaptive Smoothing
Adaptive smoothing is the computer
monitoring of tracking signals and self-
adjustment if a limit is tripped.
In exponential smoothing, the values of
and are adjusted when the computer
detects an excessive amount of variation.