1.

(a) Three months weighted moving average method to forecast the sales for the months April
December:
Given weights are W1= 3/6, W2= 2/6 and W3= 1/6. We are giving more weight to more recent data.
Formula Used:

Ft = [W1 * A (t-1) + W2 * A (t-2) + W3 * A (t-3)] / (W1 + W2 + W3)

FArpil = (W1 * A March + W2 * A February + W3 * A January) / (W1 + W2 + W3)
= (3/6 * 27 + 2/6 * 24 + 1/6 * 20) / (3/6 + 2/6 + 1/6)
= (13.5 + 8 + 3.33) / (6/6)
= $ 24.8332 Million
*** The formula has been used in the same way using the relevant data for forecasting sales for other
months.

Months

Actual Sales, At
(Million)

January
February
March

20
24
27

Forecast
Sales, Ft
(Million)
-

April

31

May

Error (et)
At - Ft

Absolute Value of
Error | et |

{Error
(et)}2

24.83

6.17

6.17

38.07

37

28.50

8.50

8.50

72.25

June

47

33.33

13.67

13.67

186.87

July

53

41

12

12

144

August

52

48.33

3.67

3.67

13.47

September

54

51.50

2.5

2.5

6.25

October

36

53.17

-17.17

17.17

294.81

November

32

44.67

-12.67

12.67

160.53

December

29

37

-8

64

1. (b) Simple Exponential Smoothing ( = 0.6) Method to forecast the sales for the months April
December:
Given that, = 0.6 and the initial forecast for January was $22 million.
Formula used:

Ft = F (t-1) + [A (t-1) - F (t-1)] = F (t-1) + 0.6*[A (t-1) - F (t-1)]

F April = F March + (A March - F March)
= 22.72 + 0.6*(27 22.72)

= $ 25.2880 Million

*** The formula has been used in the same way using the relevant data for forecasting sales for other
months.

Months

Actual Sales,
At (Million)

Forecast
Sales, Ft
(Million)

January

20

22.00

-2

February

24

20.80

3.2

3.2

10.24

March

27

22.72

4.28

4.28

18.32

April

31

25.29

5.71

5.71

32.6

May

37

28.72

8.28

8.28

68.56

June

47

33.69

13.31

13.31

177.16

July

53

41.67

11.33

11.33

128.37

August

52

48.47

3.53

3.53

12.46

September

54

50.59

3.41

3.41

11.63

October

36

52.64

-16.64

16.64

276.89

November

32

42.65

-10.65

10.65

113.42

December

29

36.27

-7.27

7.27

52.85

Error (et)
At - Ft

Absolute Value of
Error | et |

Mean Absolute Deviation of Simple Exponential Smoothing (=0.6):

{Error
(et)}2
4

Actual

Months

Sales,

At (Million)

Forecast

Error (et)

Absolute Value

(Million)

At - Ft

of Error | et |

Sales,

Ft

April

31

25.29

5.71

5.71

May

37

28.72

8.28

8.28

June

47

33.69

13.31

13.31

July

53

41.67

11.33

11.33

August

52

48.47

3.53

3.53

September

54

50.59

3.41

3.41

October

36

52.64

-16.64

16.64

November

32

42.65

-10.65

10.65

December

29

36.27

-7.27

7.27

et = 11.01

| et | = 80.13

MAD SES (=0.6) = ( | et |) / n = 80.13 / 9 = 8.90

Running Sum Forecasting Error (RSFE) = et = 11.01
Tracking Signal (TS) = RSFE / MAD SES (=0.6)
= 11.01 / 8.90 = 1.24
Here Tracking Signal for Simple Exponential Smoothing (=0.6) is 1.24 which is between -3 and 3. So
we can say that Simple Exponential Smoothing (=0.6) for Forecasting is Unbiased.
1. (c) Comparison of the performances of Three Months Weighted Moving Average and Simple
Exponential Smoothing Method (=0.6) using Mean Absolute Deviation (MAD):
Mean Absolute Deviation (MAD) of Three Months Weighted Moving Average:

Months

Actual Sales, At
(Million)

Forecast
Sales, Ft
(Million)

Error (et)
At - Ft

Absolute Value of
Error | et |

April
May
June
July
August
September
October
November
December

31
37
47
53
52
54
36
32
29

24.83
28.50
33.33
41
48.33
51.50
53.17
44.67
37

6.17
8.50
13.67
12
3.67
2.5
-17.17
-12.67
-8

6.17
8.50
13.67
12
3.67
2.5
17.17
12.67
8
| et | = 84.35

MAD3 Months WMA = ( | et |) / n = 84.35 / 9 = 9.372

Mean Absolute Deviation of Simple Exponential Smoothing (=0.6):

Months

Actual Sales, At
(Million)

Forecast
Sales, Ft
(Million)

April

31

25.29

5.71

5.71

May

37

28.72

8.28

8.28

June

47

33.69

13.31

13.31

July

53

41.67

11.33

11.33

August

52

48.47

3.53

3.53

September

54

50.59

3.41

3.41

October

36

52.64

-16.64

16.64

November

32

42.65

-10.65

10.65

December

29

36.27

-7.27

7.27

Error (et)
At - Ft

Absolute Value of
Error | et |

| et | = 80.13

MAD SES (=0.6) = ( | et |) / n = 80.13 / 9 = 8.90

Recommendation:

Mean Absolute Deviation (MAD) for Simple Exponential Smoothing (=0.6) 8.90 is less than
Mean Absolute Deviation (MAD) for Three Months Weighted Moving Average 9.372. As Simple
Exponential Smoothing forecasts the sales for Dalworth Company with less error, we recommend
Simple Exponential Smoothing (=0.6) over the Three Months Weighted Moving Average
Method.

1. (d) Comparison of the performances of Three Months Weighted Moving Average and Simple
Exponential Smoothing Method (=0.6) using Root Mean Squared Error (RMSE):
Root Mean Squared Error (RMSE) of Three Months Weighted Moving Average:

Months

Actual Sales, At
(Million)

Forecast
Sales, Ft
(Million)

Error (et)
At - Ft

Absolute
Value of
Error | et |

{Error (et)}2

April

31

24.83

6.17

6.17

38.07

May

37

28.50

8.50

8.50

72.25

June

47

33.33

13.67

13.67

186.87

July

53

41

12

12

144

August

52

48.33

3.67

3.67

13.47

September

54

51.50

2.5

2.5

6.25

October

36

53.17

-17.17

17.17

294.81

November

32

44.67

-12.67

12.67

160.53

December

29

37

-8

64

(et)2= 980.25
2

Mean Squared Error (MSE) 3 months WMA = (et) / n = 980.25 / 9 = 108.92

Root Mean Squared Error (RMSE) 3 months WMA = MSE = (108.92) = 10.44

Root Mean Squared Error (RMSE) of Simple Exponential Smoothing (=0.6):

Months

Actual Sales,
At (Million)

Forecast
Sales, Ft

Error (et)
At - Ft

Absolute Value
of Error | et |

{Error (et)}2

(Million)
April

31

25.29

5.71

5.71

32.6

May

37

28.72

8.28

8.28

68.56

June

47

33.69

13.31

13.31

177.16

July

53

41.67

11.33

11.33

128.37

August

52

48.47

3.53

3.53

12.46

September

54

50.59

3.41

3.41

11.63

October

36

52.64

-16.64

16.64

276.89

November

32

42.65

-10.65

10.65

113.42

December

29

36.27

-7.27

7.27

52.85
(et)2= 873.94

Mean Squared Error (MSE) SES (=0.6) = (et)2 / n = 873.94 / 9 = 97.10

Root Mean Squared Error (RMSE) SES (=0.6) = MSE = (873.94) = 9.85
Recommendation:
Root Mean Squared Error (RMSE) for Simple Exponential Smoothing (=0.6) 9.85 is less than
Root Mean Squared Error (RMSE) for Three Months Weighted Moving Average 10.44. As
Simple Exponential smoothing forecasts the sales for Dalworth Company with less error, we
recommend it over the Three Months Weighted Moving Average Method.
2. Simple Exponential Smoothing ( = 0.25) Method to forecast the calls for the week of August 7:
Given that, = 0.25 and the forecast for the week of July 3 = 23 calls
Formula Used:

Ft = F (t-1) + [A (t-1) - F (t-1)] = F (t-1) + 0.25*[A (t-1) - F (t-1)]

Week of
July 3
July 10

Actual Service Calls

27
36

Forecast Service Calls

23
24

July 17
July 24
July 31
August 7

31
24
23

27
28
27
26

F July 10

= F July 3 + (A July 3 F July 3)

F July 17

= F July 10 + (A July 10 F July 10) = 24 + 0.25*(36 24) = 27 calls

F July 24

= F July 17 + (A July 17 F July 17)

F July 31

= F July 24 + (A July 24 F July 24) = 28 + 0.25*(24 28) = 27 calls

F August 7

= F July 31 + (A July 31 F July 31)

= 23 + 0.25*(27 23) = 24 calls

= 27 + 0.25*(31 27) = 28 calls

= 27 + 0.25*(23 27) = 26 calls

Using Simple Exponential Smoothing Method with = 0.25, the forecasted number of calls for the
week of August 7th is 26 calls.

3. (a) Forecast demand with Simple Exponential Smoothing with = 0.6

Given that, = 0.6 and the initial forecast for Year 1993 was 41.
Formula used:

Ft = F (t-1) + [A (t-1) - F (t-1)] = F (t-1) + 0.6*[A (t-1) - F (t-1)]

F 1994 = F 1993 + (A 1993 - F 1993)
= 41 + 0.6*(45 41)

= 43.4 Surgeries
*** The formula has been used in the same way using the relevant data for forecasting surgeries for
other years.
Year
1993
1994
1995
1996
1997
1998

Actual Demand, At
45
50
52
56
58

Forecast Demand, Ft
41.0000
43.4000
47.3600
50.1440
53.6576
56.2630

(b) Forecast demand with Simple Exponential Smoothing with = 0.9

Given that, = 0.6 and the initial forecast for Year 1993 was 41.
Formula used:

Ft = F (t-1) + [A (t-1) - F (t-1)] = F (t-1) + 0.6*[A (t-1) - F (t-1)]

F 1994 = F 1993 + (A 1993 - F 1993)
= 41 + 0.9*(45 41)
= 44.6 Surgeries
*** The formula has been used in the same way using the relevant data for forecasting surgeries for
other years.
Year
1993
1994
1995
1996
1997
1998

Actual Demand, At
45
50
52
56
58

Forecast Demand, Ft
41.0000
44.6000
49.4600
51.7460
55.5746
57.7575

(c) Three Year Moving average method to forecast :

Formula Used:
Ft = ( A t-1 + A t-2 + A t-3 ) / 3
F1996

=(

A 1995 + A 1994 + A 1993 ) / 3

= ( 52 + 50 + 45 ) / 3
= 49 Surgeries
*** The formula has been used in the same way using the relevant data for forecasting surgeries
for other years.
Year

Actual Demand, At

1993
1994
1995
1996
1997
1998

45
50
52
56
58

Forecast Demand,
Ft
49.0000
52.6667
55.3333

(d) Three Year weighted moving average method to Forecast:

Given weights are W1= 3/6, W2= 2/6 and W3= 1/6. We are giving more weight to more recent data.
Formula Used:

Ft = [W1 * A (t-1) + W2 * A (t-2) + W3 * A (t-3)] / (W1 + W2 + W3)

F1996 = (W1 * A 1995 + W2 * A 1994 + W3 * A 1993) / (W1 + W2 + W3)
= (3/6 * 52 + 2/6 * 50 + 1/6 * 45) / (3/6 + 2/6 + 1/6)
= 50.17 Surgeries

*** The formula has been used in the same way using the relevant data for forecasting surgeries for
other years.
Year

Actual Demand, At

1993
1994
1995
1996
1997
1998

45
50
52
56
58

Forecast Demand,
Ft
50.17
53.67
56.33

(e) Forecasting using Regression Model (Y=42.6+3.2X) :

By putting value of Independent Variable X we can forecast the value of dependent Variable Y.
Here X is the Index for the Year and Y is the number of Surgeries.
Formula:
Y = 42.6+3.2X
Y1993 = 42.6 + 3.2 * 1 = 45.8

*** The formula has been used in the same way using the relevant data for forecasting surgeries for
other years.

Year

Actual Demand, At

1993
1994
1995
1996
1997

45
50
52
56
58

Forecast Demand,
Ft
45.8
49
52.2
55.4
58.6

1998

61.8

(f) Comparison of the performances of Simple Exponential Smoothing with = 0.6, Simple
Exponential Smoothing with = 0.9, Three Year Moving Average (MA), Three Year Weighted
Moving Average (WMA) and Regression Model (Y=42.6+3.2X) by using Mean Absolute Deviation
(MAD).
(i) Mean Absolute Deviation of Simple Exponential Smoothing with = 0.6
Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand, Ft
41.0000
43.4000
47.3600
50.1440
53.6576
56.2630

Error (et),
At - Ft
4.0000
6.6000
4.6400
5.8560
4.3424

Absolute Value of
Error, | et |
4.0000
6.6000
4.6400
5.8560
4.3424
| et | = 25.4384

MAD SES (=0.6) = ( | et |) / n = 25.4384 / 5 = 5.0877

(ii) Mean Absolute Deviation of Simple Exponential Smoothing with = 0.9

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand, Ft
41.0000
44.6000
49.4600
51.7460
55.5746
57.7575

Error (et),
At - Ft
4.0000
5.4000
2.5400
4.2540
2.4254

Absolute Value of
Error, | et |
4.0000
5.4000
2.5400
4.2540
2.4254
| et | = 18.6194

MAD SES (=0.9) = ( | et |) / n = 18.6194 / 5 = 3.7239

(iii) Mean Absolute Deviation of Three Year Moving Average (MA):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
49.0000
52.6667
55.3333

Error
(et),
At - Ft
7.0000
5.3333

Absolute Value of
Error,
| et |
7.0000
5.3333
| et | = 12.3333

MAD 3 year MA = ( | et |) / n = 12.3333 / 2 = 6.1667

(iv) Mean Absolute Deviation of Three Year Weighted Moving Average (WMA):
Forecast
Year
Demand,
Ft
1993
45
1994
50
1995
52
1996
56
50.1665
1997
58
53.6666
1998
56.3332
MAD 3 year WMA = ( | et |) / n = 10.1669 / 2 = 5.0835
Actual
Demand, At

Error
(et),
At - Ft
5.8335
4.3334

Absolute Value of
Error,
| et |
5.8335
4.3334
| et | = 10.1669

(v) Mean Absolute Deviation of Regression Model (Y=42.6+3.2X):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
45.8
49
52.2
55.4
58.6
61.8

Error
(et),
At - Ft
-0.8
1
-0.2
0.6
-0.6

Absolute Value of
Error,
| et |
0.8
1
0.2
0.6
0.6
| et | = 3.2

MAD RM(Y=42.6+3.2X) = ( | et |) / n = 3.2 / 5 = 0.64

Recommendation:
From our calculation, we have found that,
MAD 3 year MA (6.1667) > MAD SES (=0.6) (5.0877) > MAD 3 year WMA (5.0835) > MAD SES (=0.9) (3.7239) >
MAD RM(Y=42.6+3.2X) (0.64)
Therefore, we recommend the Regression Model (Y=42.6+3.2X) Method to be used to forecast the
surgeries for the year 1998 as it has the least error.

(g) Comparison of the performances of Simple Exponential Smoothing with = 0.6, Simple
Exponential Smoothing with = 0.9, Three Year Moving Average (MA), Three Year Weighted
Moving Average (WMA) and Regression Model (Y=42.6+3.2X) by using Root Mean Squared Error
(RMSE).
(i) Root Mean Squared Error (RMSE) of Simple Exponential Smoothing (=0.6):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
41.0000
43.4000
47.3600
50.1440
53.6576
56.2630

Error (et),
At - Ft
4.0000
6.6000
4.6400
5.8560
4.3424

Absolute Value
of Error,
| et |
4.0000
6.6000
4.6400
5.8560
4.3424

{Error (et)}2
16.0000
43.5600
21.5296
34.2927
18.8564
(et)2 = 134.2388

Mean Squared Error (MSE) SES (=0.6) = (et)2 / n = 134.2388 / 5 = 26.8478

Root Mean Squared Error (RMSE) SES (=0.6) = MSE = (26.8478) = 5.1815

(ii) Root Mean Squared Error (RMSE) of Simple Exponential Smoothing (=0.9):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
41.0000
44.6000
49.4600
51.7460
55.5746
57.7575

Error (et),
At - Ft
4.0000
5.4000
2.5400
4.2540
2.4254

Absolute
Value of
Error,
| et |
4.0000
5.4000
2.5400
4.2540
2.4254

{Error (et)}2
16.0000
29.1600
6.4516
18.0965
5.8826
(et)2 = 75.5907

Mean Squared Error (MSE) SES (=0.9) = (et)2 / n = 75.5907/ 5 = 15.1181

Root Mean Squared Error (RMSE) SES (=0.9) = MSE = (15.1181) = 3.8882

(iii) Root Mean Squared Error (RMSE) of Three Year Moving Average (MA):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
49.0000
52.6667
55.3333

Error (et),
At - Ft
7.0000
5.3333

Absolute Value
of Error,
| et |
7.0000
5.3333

{Error (et)}2
49.0000
28.4444
(et)2 = 77.4444

Mean Squared Error (MSE) 3 Year MA = (et)2 / n = 77.4444 / 2 = 38.7772

Root Mean Squared Error (RMSE) 3 Year MA = MSE = (38.7772) = 6.2227

(iv) Root Mean Squared Error (RMSE) of Three Year Weighted Moving Average (WMA):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
50.1665
53.6666
56.3332

Error (et),
At - Ft
5.8335
4.3334

Absolute Value
of Error,
| et |
5.8335
4.3334

{Error (et)}2
34.0297
18.7784

(et)2 = 52.8081

Mean Squared Error (MSE) 3 Year WMA = (et)2 / n = 52.8081 / 2 = 26.4040

Root Mean Squared Error (RMSE) 3 Year WMA = MSE = (26.4040) = 5.1385

(v) Root Mean Squared Error (RMSE) of Regression Model (Y=42.6+3.2X):

Year
1993
1994
1995
1996
1997
1998

Actual
Demand, At
45
50
52
56
58

Forecast
Demand,
Ft
45.8
49
52.2
55.4
58.6
61.8

Error
(et),
At - Ft
-0.8
1
-0.2
0.6
-0.6

Absolute Value
of Error,
| et |
0.8
1
0.2
0.6
0.6

{Error (et)}2
0.64
1
0.04
0.36
0.36
(et)2 = 2.4

Mean Squared Error (MSE) RM(Y=42.6+3.2X) = (et)2 / n = 2.4 / 5 = 0.48

Root Mean Squared Error (RMSE) RM(Y=42.6+3.2X) = MSE = (0.48) = 0.6928

Recommendation:
From our calculation, we have found that,
RMSE 3 year MA (6.2227) > RMSE SES (=0.6) (5.1815) > RMSE 3 year WMA (5.1385) > RMSE SES (=0.9) (3.8882)
> RMSE RM(Y=42.6+3.2X) (0.6928)
Therefore, we recommend the Regression Model (Y=42.6+3.2X) Method to be used to forecast the
surgeries for the year 1998 as it has the least error.