Predictive Analytics : QM901.

1x
Prof U Dinesh Kumar, IIMB

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 Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Time Series Data – Additive and Multiplicative Models

1. Additive Forecasting Model

 Seasonalit
Trend  y Cyclical
 Random

Yt  Tt  St  Ct  Rt

2. Multiplicative Forecasting Model

 Seasonalit
Trend  y Cyclical
 Random

Yt  Tt  St  Ct  Rt
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 Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Time Series Data Decomposition

Multiplicative Forecasting Model

 Seasonalit
Trend  y
Yt  Tt  St

Yt
St 
Tt Yt / Tt is called
deseasonalized data

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 Predictive Analytics : QM901.1x

Time Series Techniques

Prof U Dinesh Kumar, IIMB

• Moving Average.

• Exponential Smoothing.

• Auto-regression Models (AR Models).

• ARIMA (Auto-regressive Integrated Moving Average) Models.

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 Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Moving Average Method

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 Predictive Analytics : QM901.1x

Moving Average (Rolling Average)

Prof U Dinesh Kumar, IIMB

• Simple moving average.

– Used mainly to capture trend and smooth short term fluctuations.
– Most recent data are given equal weights.

• Weighted moving average

– Uses unequal weights for data

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 Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Data

• Demand for continental breakfast at the Die Another Day Hospital.

• Daily data between 1 October 2014 – 23 January 2015 (115 days)

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 Predictive Analytics : QM901.1x

Simple moving average

Prof U Dinesh Kumar, IIMB

• The forecast for period t+1 (Ft+1) is given by the average of the ‘n’ most
recent data.
1 t
Ft 1   Yi
n i  t  n 1

Ft 1  Forecast for period t  1

Yi  Data corresponding to time period i

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 Predictive Analytics : QM901.1x

Simple moving average

Prof U Dinesh Kumar, IIMB

• The forecast for period t+1 (Ft+1) is given by the average of the ‘n’ most
recent data.
1 t
Ft 1   Yi
n i  t  n 1

Ft 1  Forecast for period t  1

Yi  Data corresponding to time period i

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Demand for Continental Breakfast at DAD Hospital – Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Moving Average
60
50
40
30
20
10
0

Actual Demand Forecast

1 t
Ft 1   Yi
7 i  t  7 1

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Measures of aggregate error
Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

Mean absolute error MAE 1 n

MAE   Et
n t 1

Mean absolute percentage 1 n Et

MAPE  
error MAPE n t 1 Yt

Mean squared error MSE 1 n 2

MSE   Et
n t 1

Root mean squared error RMSE 

1 n 2
 Et
RMSE n t 1

Et = Ft - Yt
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 Predictive Analytics : QM901.1x
Prof U Dinesh Kumar, IIMB

DAD Forecasting – MAPE and RMSE

Mean absolute percentage 0.1068 or 10.68%

error MAPE
Root mean squared error 5.8199
RMSE

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