Question

Given an actual demand this period of 103, a forecast value for this period of 99, and an alpha of 0.4, what is the exponential smoothing forecast for next period?

 

Answer 1

Concepts and reason

The simple exponential smoothing method is used for forecasting a time series when there is no trend or seasonal pattern, but the mean (or level) of the time series $\left( {{y_t}} \right)$ is slowly changing over time.

Fundamentals

The exponential smoothing is a time-series smoothing and forecasting technique that produces an exponentially weighted moving average in which each smoothing calculation or forecast is dependent upon all previously observed values.

The model of the exponential smoothing is, ${F_{t + 1}} = \alpha {D_t} + \left( {1 - \alpha } \right){F_t}$

Here, ${F_{t + 1}}$ represents the fore cast for next period

${D_t}$ represents the actual value for the present period

${F_t}$ represents the previously determined forecast for present period

$\alpha$ represents the weighting factor (between 0 and 1)

The actual demand this period is: 103

The forecast value for this period is: 99

The weighting factor is: 0.4

The exponential model is,

$\begin{array}{c}\\{F_{t + 1}} = \alpha {D_t} + \left( {1 - \alpha } \right){F_t}\\\\ = 0.40\left( {Dt} \right) + \left( {1 - 0.40} \right){F_t}\\\end{array}$

The correct option is: A (100.6)

Calculate the exponential smoothing forecast for next period.

The exponential smoothing is,

$\begin{array}{c}\\{F_{Next}} = 0.40\left( {Dt} \right) + \left( {1 - 0.40} \right){F_t}\\\\ = 0.40\left( {103} \right) + \left( {1 - 0.40} \right)99\\\\ = 41.2 + 59.4\\\\ = 100.6\\\end{array}$

Ans:

The exponential smoothing forecast for next period is 100.6