T18-04 - 1 T18-04 Linear Trend Forecast Purpose Allows the analyst to create and analyze the "Linear Trend" forecast. The MAD and MSE for the forecast.

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T T18-04 Linear Trend Forecast Purpose Allows the analyst to create and analyze the "Linear Trend" forecast. The MAD and MSE for the forecast are calculated, and a graphical representation of history and forecast are shown. Inputs Historical Period Demand n Future Periods to Forecast Outputs Linear Trend Forecast Forecast Error MAD & MSE Graph showing Historical Demand and Linear Trend Forecast Limitations 60 Time Series Observations

T Linear Trend Time Series Techniques Linear Trend – forecast is projected based on the trend of the historical data Horizon: Intermediate range Method: Strength: Ability to determine a linear trend and develop an intermediate range forecast Weakness: Will not track down turns in the trend Growth Decline

T Given that a forecast is rarely correct, the methodology you choose should be the one which provides the least error from the actual historical demand. Forecast error is defined as the difference between actual historical demand and the forecast. Forecast Accuracy

T Forecast Error

T There are two measures used to monitor the accuracy of a forecast. The Mean Absolute Deviation (MAD) and the Mean Squared Error (MSE). The MAD is the average of the absolute value of the forecast errors. The MSE is the average of the squared forecast errors. Note : The formula for the MSE shown above may vary slightly. Some textbooks divide the sum of the squared errors by n-1 rather than n. Monitoring the Forecast

T Prepare a linear trend forecast with 4 periods in the future for the data shown here. Calculate the linear trend forecast, MAD and MSE. Linear Trend Example

T Input the History Values, and number of periods in the future to forecast in the light green cells. The Linear Trend Forecast, Error, MAD, and MSE are automatically calculated.

T A graph showing the History Values and Linear Trend Forecast is automatically produced.