1. Calculate a forecast using a simple three-month moving average.

The simple three-month moving average for month t is given by,

At ( Dt Dt 1 Dt 2 ) / 3 , where Dt denotes the actual demand in month t.
Now, the forecast for the next period is calculated using the formula
Ft+1 = At ( Dt Dt 1 Dt 2 ) / 3

Month

January
February
March
April
May
June
July
August
September
October
November
December
Total
Demand

Last
3
Year 3 period period Error
moving forecas
avg
t
510
383
1403
765.3
1913
1233.0
765 1147.67
1148
1488.0
1233
-85.00
893
1318.0
1488 -595.00
829
956.7
1318 -489.00
638
786.7
957
-318.67
2168
1211.7
787 1381.33
1530
1445.3
1212 318.33
701
1466.3
1445 -744.33
636
955.7
1466 -830.33

12752
1062.6
Avg Demand
7
Avg Bias
Abs Dev
Mean Abs
Dev

Total
Bias
Bias x

-215.00
-23.89
5909.67
656.63

2. Calculate a forecast using a three-period weighted moving average. Use weights of

0.60, 0.25 and 0.15 for the most recent period, the second most recent period, and the
third most recent period, respectively.
The three-period weighted moving average for month t is given by,
At 0.60 Dt 0.25 Dt 1 0.15 Dt 2
Now, the forecast for the next period is calculated using the formula
Ft+1 = At 0.60 Dt 0.25 Dt 1 0.15 Dt 2

Month

Last Year

January
February
March
April
May
June
July
August
September
October
November
December
Total
Demand
Avg
Demand
Avg Bias
Abs Dev
Mean Abs
Dev

510
383
1403
1913
1148
893
829
638
2168
1530
701
636

3 period
weighted
moving avg

3
period Error
forecas
t

1014.1
1556.0
1377.5
1109.8
892.9
724.0
1584.7
1555.7
1128.3
786.4

1014
1556
1378
1110
893
724
1585
1556
1128

899
-408
-485
-281
-255
1444
-55
-855
-492

12752
Total
Bias
Bias x

1062.67

-486.80
-54.09
5172.70
574.74

3. Calculate a forecast using the exponential smoothing method. Assume the forecast for
period 1 is 1,063.
The exponential smoothing forecast for month t is given by,
Ft Dt 1 (1 ) At 1
The forecast using the exponential smoothing method with = 0.1 is given in the
following table.
Month
January
February
March
April
May
June
July

Last
Year
510
383
1403
1913
1148
893
829

Foreca
st
1063
1008
945
991
1083
1090
1070

Error
-553
-625
458
922
65
-197
-241

August
638
1046
-408
September 2168
1005
1163
October
1530
1121
409
November
701
1162
-461
December
636
1116
-480
Total
Demand
12752
Avg
Total
Demand
1062.67 Bias
51.29
Avg Bias
Bias x
4.27
Abs Dev
5980.75
Mean Abs
Dev
498.40

The forecast using the exponential smoothing method with = 0.2 is given in the
following table.
Last Foreca
Month
Year
st
Error
January
510
1063
-553
February
383
952
-569
March
1403
839
564
April
1913
951
962
May
1148
1144
4
June
893
1145
-252
July
829
1094
-265
August
638
1041
-403
September
2168
961
1207
October
1530
1202
328
November
701
1268
-567
December
636
1154
-518
Total
Demand
12752
Avg
Total
Demand 1062.67 Bias
-61.73
Avg Bias
Bias x
-5.14
Abs Dev
6193.13
Mean Abs
Dev
516.09

From the above two forecast table we can see that exponential forecast using = 0.1
results in a better forecast than using = 0.2 as a smoothing constant.
4. Calculate a forecast using the trend adjusted exponential smoothing method. Use 0.20
for both alpha and beta.

The trend-adjusted exponential smoothing method uses the following formula,

with two parameters, alpha () for the average and beta () for the trend.
At = *Dt + (1 )*(At-1 + Tt-1)
Tt = *(At At-1) + (1 )*Tt-1
Now the forecast for next period is given by, Ft+1 = At + Tt
For the given data, the average demand was 1063 with an average increase of 11 per
week. Therefore we can let A0 = 1063 and T0 = 11. Using = 0.2, we get the trend
adjusted exponential smoothing forecast as follows.

Last
Month
Year
January
510
February
383
March
1403
April
1913
May
1148
June
893
July
829
August
638
September 2168
October
1530
November
701
December
636
Total
Demand
12752
Avg
Demand 1062.67
Avg Bias
Abs Dev
Mean Abs
Dev

Smoothed Trend
Average( Estimate Foreca
At)
(Tt)
st
961.2
-11.6
836.3
-34.2
950
922.3
-10.2
802
1112.3
29.8
912
1143.3
30.1
1142
1117.3
18.9
1173
1074.7
6.6
1136
992.7
-11.2
1081
1218.8
36.3
982
1310.1
47.3
1255
1226.1
21.0
1357
1124.9
-3.4
1247

Total
Bias
Bias x

Error
-567
601
1001
6
-280
-307
-443
1186
275
-656
-611

204.06
18.55
5934.16
539.47

5. Calculate a seasonal influenced forecast.

Month
January
February
March
Total
April

Year 1
510
383
1403
2296
1913

Year 2 Year 3
526
501
394
376
1446
1377
2366
2254
1972
1878

Total
1537
1153
4226
6916
5763

May
June
Total
July
August
September
Total
October
November
December
Total
Total Demand
Demad per
season

1148
893
3954
829
638
2168
3635
1530
701
636
2867
12752

1183
920
4075
854
657
2235
3746
1578
723
658
2959
13146

1127
876
3881
814
626
2128
3568
1502
689
626
2817
12520

3458
2689
11910
2497
1921
6531
10949
4610
2113
1920
8643
38418

3188.0

3286.5 3130.0

9604.5

Determine the seasonal index associated with each quarter by dividing the seasonly
demand by the average demand per season for that year. Then, calculate the average
index for each season.

Season
1
2
3
4

Year 1
0.7202
1.2403
1.1402
0.8993

Year 2
0.7199
1.2399
1.1398
0.9003

Year 3
0.7201
1.2399
1.1399
0.9000

Average
seasonal
Index

0.7201
1.2400
1.1400
0.8999

6. Based on the various methods used to calculate a forecast for TFY, which method
produced the best forecast? Why? How could you improve this forecast?
To assess the accuracy you can compare the "Mean Abolute Deviation"; the smaller the
value the more accurate the forecast. Based on the forecasts, we have:
Simple Moving Average MAD:
3-Month Weighted Moving Average MAD:
Exponential Smoothing MAD:
Trend adjusted exponential Smoothing MAD:

656.63
574.74
498.40
539.
47

Here the MAD for Exponential smoothing forecast with smoothing constant = 0.1 is
smaller. So the Exponential smoothing method produced the best forecast.