When RMSE is the performance criterion

1) Exponential smoothing (=0.6)

Year t

At

Ft

1993
1994
1995
1996
1997

45
50
52
56
58

41
43.4
47.36
50.144
53.66

Et=At-Ft
4
6.6
4.64
5.86
4.34

F1994=f1993+ (et)
=41+.6*4
=43.4
F1995=f1994+ (et)
=43.4+.6*6.6
=47.36
F1996=f1995+ (et)
=47.36+4.64
=50.144
F1997=f1996+ (et)
=50.144+.6*5.86
=53.66
F1998=f1997+ (et)
= 53.66+.6*4.34
=56.27
MSE= | et|^2/n
= (16+43.56+21.5296+34.3396+18.8356)/5
=26.85
RMSE=MSE

Absolute
et
4
6.6
4.64
5.86
4.34

Et^2
16
43.56
21.5296
34.3396
18.8356

=26.85
=5.18
2) Simple moving average (n=3)
Year t

At

Ft

1993
1994
1995
1996
1997

45
50
52
56
58

41
42.33
45.33
49
52.67

Et=At-Ft
4
7.67
6.67
7
5.33

Absolute
et
4
7.67
6.67
7
5.33

Et^2
16
58.8289
44.4889
49
28.4089

Here, to calculate the forecasted demand for 1994 under 3 years moving average, we
need to know the actual demand for 1992 and 1991.As actual demands for 1992 and
1991 are not given; we will assume it under nave 1 method. So, actual demand for
1992 and 1991are both 41 as forecasted demand for 1993 is 41.
Forecast for 1994=average of actual demands in1993, 1992 and 1991
1995=
1996=
1997=
1998= average of actual demands in1997, 1996 and 1995
=55.33
MSE= | et|^2/n
=39.345
RMSE=MSE

=39.345
=6.27
3) Weighted moving average (n=3)
Year t

At

Ft

1993
1994
1995
1996
1997

45
50
52
56
58

41
42.33
46.83
50.17
53.67

Et=At-Ft
4
7.67
5.17
5.83
4.33

Absolute
et
4
7.67
5.17
5.83
4.33

Et^2
16
58.8289
26.7289
33.9889
18.7489

Here, to calculate the forecasted demand for 1994 in 3 years weighted moving
average, we need to know the actual demand for 1992 and 1991.As actual demands
for 1992 and 1991 are not given; we will assume it under nave 1 method. So, actual
demand for 1992 and 1991are both 41 as forecasted demand for 1993 is 41.
Forecast for 1998= (w1*A 1997+w2*A1996+w3*A1995)/w1+w2+w3
=56.33
MSE= | et|^2/n
=30.85912
RMSE=MSE
=30.85912
=5.555

4) Regression model y=42.6+3.2x

Y=no of surgeries, x=index for years
Year t

At

Ft

1993
1994
1995
1996
1997

45
50
52
56
58

41
48.6
51.8
55
58.2

Et=At-Ft
4
1.4
0.2
1
-0.2

Absolute
et
4
1.4
0.2
1
0.2

Et^2
16
1.96
.04
1
.04

SUMMARY OUTPUT
Regression Statistics
Multiple R
0.988483301
R Square
0.977099237
Adjusted R
Square
0.969465649
Standard Error
0.894427191
Observations
5
ANOVA
df
Regression
Residual
Total

Intercept
X Variable 1

SS
1
3
4

102.4
2.4
104.8

Coefficients
42.6
3.2

Standard
Error
0.938083152
0.282842712

MS
102.4
0.8

t Stat
45.41175
11.31371

F
128

Significance F
0.001481065

P-value
2.35E-05
0.001481

Lower 95%
39.61460074
2.299868255

Here, r ^2 is the co-efficient of determination.R^2 =0.977099237 or 97.71%

means that 97.71% of change in Y can be explained by the change in X. we can also

Upper 95
45.5853
4.10013

deduce that , in the past out of 100 times 97 times Y changed because of change in
X.
R=c0relation co efficient. R=0.9884 means that the two variables X and Y are
--------1) strongly related
2) Positively related

MSE= | et|^2/n
=3.808
RMSE=MSE
=3.808
=1.95

LEAST=1.95 AT regression analysis