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Forecasting using different approaches - an example

Present three forecasts, one that would result from the use of each of the following approaches (show all formulas):

Calculate the appropriate naïve approach and list two or more advantages of using this approach.

Compute a five-period moving average and list two or more advantages of using this approach.

Compute a weighted average using the four most recent periods with weights assigned as follows: .40 (most recent), .30, .20, and .10 and list one or more advantages of using this approach.

The owner of a bakery has the following demands for chocolate chip cookies per day (Period: Number of Demands):

1: 112

2: 136

3: 122

4: 139

5: 118

6: 137

7: 125

8: 141

Solution Preview


All the information you will need is in the .doc file, but if you'd like to see how I've constructed graphs or check how to forecast using spreadsheets you can also look in the Excel file.

The text below is pasted for your convenience, but to see the formulas and graph please refer to the attached .doc file.



First of all, these exercises deal with forecasting which is a fairly complex issue. But let's try some simple forecasting tools.
Naïve forecast as the name suggests is very simple - it assumes that the last observed value will continue to be observed in the future. Our last observation ...

Solution Summary

This solution describes different forecasting approaches and their advantages. Using an example data set, these forecasts are calculated and compared. An Excel file shows the underlying calculations (using formulas).