Question

Use a three-period simple moving average and weighted-moving average and Naive methods to forecast the 8th month. Calculate and compare the MAD for methods.

Month	Sales	MA	AD	WMA	AD	Naive	AD
1	20	---	---	---	---	---	---
2	25	---	---	---	---	---	---
3	22	---	---	---	---	---	---
4	26
5	22
6	24
7	26
8	----	?				?

AD: Absolute Deviation

MA: Moving Average

WMA: Weighted Moving Average

Answer 1

Naïve Forecasting 3 period MA 3 period WA with weights 0.2, 0.3 and 0.5 Month (t) Sales S(t) Error |= Abs(S(t)-F(t)) Error |= Abs(S(t)-F(t)) Error |= Abs(S(t)-F(t)) Forecast F(t) Forecast F(t) Forecast F(t) Calculation Value Calculation Value Calculation Value 1 20 2 25 3 22 4 26 abs(25-20.00) abs(22-25.00) abs(26-22.00) abs(22-26.00) abs(24-22.00) abs(26-24.00) 20.00 25.00 22.00 26.00 22.00 24.00 26.00 5.00 3.00 4.00 4.00 2.00 2.00 5 22 abs(26-22.33) abs(22-24.33) abs(24-23.33) abs(26-24.00) 22.33 24.33 23.33 24.00 24.00 3.67 2.33 0.67 2.00 abs(26-22.50) abs(22-24.60) abs(24-23.20) abs(26-23.80) 6 22.50 24.60 23.20 23.80 24.60 3.50 2.60 0.80 2.20 24 7 26 8 Average values 3.33 MAD 2.17 MAD 2.28 MSE As MAD of 3 period Moving Average is the least, it is the most relevant method. Formulas Used: Naive Forecasting F(t) = S(t-1) 3 period MA F(t) = Averagel S(t-3), S(t-2), S(t-1)) 3 period WA F(t) = (S(t-3)*0.2) + (S(t-2)*0.3) + (S(t-1)*0.5)