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Time Series Models: Naive Methods Averaging Methods

This document discusses various time series forecasting methods including naive methods, averaging methods, and trend models. It provides examples of simple average, moving average, and weighted moving average. It also explains exponential smoothing as a forecasting technique that calculates a new forecast as a weighted average of the last forecast and the most recent actual value, giving more weight to the actual value using a smoothing constant.

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Rahul Singh
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49 views18 pages

Time Series Models: Naive Methods Averaging Methods

This document discusses various time series forecasting methods including naive methods, averaging methods, and trend models. It provides examples of simple average, moving average, and weighted moving average. It also explains exponential smoothing as a forecasting technique that calculates a new forecast as a weighted average of the last forecast and the most recent actual value, giving more weight to the actual value using a smoothing constant.

Uploaded by

Rahul Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Time series models

▣
▣Naive
Naive methods
methods
▣
▣Averaging
Averaging methods
methods
◼
◼Simple
SimpleAverage
Average(Mean)
(Mean)
◼
◼Moving
Movingaverage
average
◼
◼Weighted
Weightedmoving
movingaverage
average
◼
◼Exponential
Exponentialsmoothing
smoothing
▣
▣Trend
Trend models
models
◼
◼Linear
Linearand
andnon-linear
non-lineartrend
trend

1
Naive Forecasting
▣ Assumes causal system
past ==> future
▣ Next period forecast = Last Period’s actual:
Naive Forecasting
▣ Next period = last period
▣ Simple to use and understand
▣ Very low cost
▣ Low accuracy

F = forecast A = actual
3
Naive Method - Example
Uh, give me a minute....
We sold 250 wheels last
week.... Now, next week
we should sell....

250
4
Averaging Methods

F = forecast A = actual α = smoothing


constant
5
Simple Average (Mean)
Next period’s forecast = average of all
historical data
Simple Average - Example
▣ Compute a simple average forecast for period
6, given the demand below

7
Simple Average - Example
▣ Compute a simple average forecast for period
6, given the demand below

F6 = (42+40+43+40+41) / 5 = 41.2

8
Moving Average
Next period’s forecast = simple average of the
last n periods
Moving Average
▣ average of last few actual data values, updated
each period
◼ easy to calculate and understand
▣ choose number of periods to include

10
Moving Average - Example
▣ Compute a three-period moving average
forecast for period 6, given the demand below

11
Moving Average - Example
▣ Compute a three-period moving average
forecast for period 6, given the demand below

12
Weighted Moving Average
Weighted Moving Average - Example
▣ Compute a 4-period weighted moving average forecast
for period 6.
▣ Use a weight of 0.4 for the most recent period, 0.3 for
the next, 0.2 for the next, and 0.1 for the next.

✹ The choice of weights may involve the use of trial and error to find a suitable
weighting scheme
✹ Weights must add up to 100%

14
Weighted Moving Average - Example

15
Exponential Smoothing Formula

▣ Forecast = previous forecast +


a percentage of the forecast error
▣ Actual - Forecast is the error term
▣ α varies from 0.1 to 0.9

Ft = Ft-1 + α(At-1 - Ft-1)


F = forecast A = actual

16
Exponential Smoothing

New forecast = Last period’s forecast


+ α (Last period’s actual demand
– Last period’s forecast)

Ft = Ft – 1 + α(At – 1 - Ft – 1)
where Ft = new forecast
Ft – 1 = previous forecast
α = smoothing (or weighting)
constant (0 ≤ α ≤ 1)
Exponential Smoothing
▣ Exponential smoothing consists of projecting
the next period's sales by combining an
average of past sales and the most recent
sales, giving more weight to the latter.

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