Discussion 2 WK 3
Forecasting Methods
1. Read Problem 6 in Chapter 6 of your textbook. Calculate and answer parts a through d. Include all calculations and spreadsheets in your post. Explain why the moving average method was used instead of another forecasting method. What might be another forecasting method that could prove to be just as useful?
2. The figures below indicate the number of mergers that took place in the savings and loan industry over a 12-year period.
Year Mergers Year Mergers
2000 46 2006 83
2001 46 2007 123
2002 62 2008 97
2003 45 2009 186
2004 64 2010 225
2005 61 2011 240
a. Calculate a 5-year moving average to forecast the number of mergers for 2012.
b. Use the moving average technique to determine the forecast for 2005 to 2011. Calculate measurement error using MSE and MAD.
c. Calculate a 5-year weighted moving average to forecast the number of mergers for 2012. Use weights of 0.10, 0.15, 0.20, 0.25, and 0.30, with the most recent year weighted being the largest.
d. Use regression analysis to forecast the number of mergers in 2012.
Solution
a. The five year moving average forecast for 2012 = (240 + 225 + 186 +97 +123)/5 = 174.2
b. The forecasts for 2005 to 2011 using 5 year moving average are
Year
Mergers
5 - year moving average
Absolute deviation
Squared error
2000
46
2001
46
2002
62
2003
45
2004
64
2005
61
52.6
8.4
70.56
2006
83
55.6
27.4
750.76
2007
123
63
60
3600
2008
97
75.2
21.8
475.24
2009
186
85.6
100.4
10080.16
2010
225
110
115
13225
2011
240
142.8
97.2
9447.84
MAD
MSE
61.45714286
5378.508571
The MAD value = Sum of absolute deviation/ 7
The MSE value = Sum of squared error/ 7
c. The five year weighted moving average forecast for 2012 = (0.3*240 +0.25* 225 + 0.2*186 +0.15*97 +0.1*123) = 192.3
d. Based on regression analysis in excel, the formula is
Mergers = 17.734*year – 35459.67
So, mergers in 2012 = 17.734*2012 – 35459.67 = 221.77
1. Read Problem 6 in Chapter 6 of your textbook. Calculate and answer parts a through d. Include all calculations and spreadsheets in your post. Explain why the moving average method was used instead of another forecasting method. What might be another forecasting method that could prove to be just as useful?
2. The figures below indicate the number of mergers that took place in the savings and loan industry over a 12-year period.
Year Mergers Year Mergers
2000 46 2006 83
2001 46 2007 123
2002 62 2008 97
2003 45 2009 186
2004 64 2010 225
2005 61 2011 240
a. Calculate a 5-year moving average to forecast the number of mergers for 2012.
b. Use the moving average technique to determine the forecast for 2005 to 2011. Calculate measurement error using MSE and MAD.
c. Calculate a 5-year weighted moving average to forecast the number of mergers for 2012. Use weights of 0.10, 0.15, 0.20, 0.25, and 0.30, with the most recent year weighted being the largest.
d. Use regression analysis to forecast the number of mergers in 2012.
Solution
a. The five year moving average forecast for 2012 = (240 + 225 + 186 +97 +123)/5 = 174.2
b. The forecasts for 2005 to 2011 using 5 year moving average are
Year
Mergers
5 - year moving average
Absolute deviation
Squared error
2000
46
2001
46
2002
62
2003
45
2004
64
2005
61
52.6
8.4
70.56
2006
83
55.6
27.4
750.76
2007
123
63
60
3600
2008
97
75.2
21.8
475.24
2009
186
85.6
100.4
10080.16
2010
225
110
115
13225
2011
240
142.8
97.2
9447.84
MAD
MSE
61.45714286
5378.508571
The MAD value = Sum of absolute deviation/ 7
The MSE value = Sum of squared error/ 7
c. The five year weighted moving average forecast for 2012 = (0.3*240 +0.25* 225 + 0.2*186 +0.15*97 +0.1*123) = 192.3
d. Based on regression analysis in excel, the formula is
Mergers = 17.734*year – 35459.67
So, mergers in 2012 = 17.734*2012 – 35459.67 = 221.77