Time Series Forecasts Trend - long-term upward or downward movement in data. Seasonality - short-term fairly regular variations in data related to factors.

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Presentation transcript:

Time Series Forecasts Trend - long-term upward or downward movement in data. Seasonality - short-term fairly regular variations in data related to factors like weather, festive holidays and vacations. Cycle – wavelike variations of more than one year’s duration these occurs because of political, economic and even agricultural conditions.

Time Series Forecasts Irregular variations - caused by unusual circumstances such as severe weathers, earthquakes, worker strikes, or major change in product or service. Random variations - caused by chance and are in reality are the residual variations that remain after the other behaviors have been identified and accounted for.

Forecast Variations Figure 3.1 Irregular variation Trend

Forecast Variations Figure 3.1 Cycles Cycles

Forecast Variations Figure 3.1 90 89 88 Seasonal variations

Techniques for Averaging Moving average Weighted moving average Exponential smoothing

Moving Averages Moving average – A technique that averages a number of recent actual values, updated as new values become available. Weighted moving average – More recent values in a series are given more weight in computing the forecast.

Simple Moving Average Formula The simple moving average model assumes an average as a good estimator of future behavior The formula for the simple moving average is: Ft = Forecast for the coming period N = Number of periods to be averaged A t-1 = Actual occurrence in the past period for up to “n” periods 15

Simple Moving Average Problem (1) Question: What are the 3-week and 6-week moving average forecasts for demand? Assume you only have 3 weeks and 6 weeks of actual demand data for the respective forecasts 15

Calculating the moving averages gives us: 10 Calculating the moving averages gives us: F4=(650+678+720)/3 =682.67 F7=(650+678+720 +785+859+920)/6 =768.67 The McGraw-Hill Companies, Inc., 2004 16

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Simple Moving Average Problem (2) Data Question: What is the 3 week moving average forecast for this data? Assume you only have 3 weeks and 5 weeks of actual demand data for the respective forecasts 18

Simple Moving Average Problem (2) Solution F4=(820+775+680)/3 =758.33 F6=(820+775+680 +655+620)/5 =710.00 19