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Forecasting Moving-Average

Forecasting is a technique used to predict future trends based on historical data, aiding businesses in decision-making and strategy development. The moving average method calculates forecasts using the average of the most recent data points, while the weighted moving average assigns different weights to observations, typically favoring the most recent data. Exponential smoothing is a specific form of weighted moving average that uses a single weight for the most recent observation, with decreasing weights for older data.

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11 views9 pages

Forecasting Moving-Average

Forecasting is a technique used to predict future trends based on historical data, aiding businesses in decision-making and strategy development. The moving average method calculates forecasts using the average of the most recent data points, while the weighted moving average assigns different weights to observations, typically favoring the most recent data. Exponential smoothing is a specific form of weighted moving average that uses a single weight for the most recent observation, with decreasing weights for older data.

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rubyranille98
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FORECASTING

MOVING AVERAGE
AIS 132
MANAGEMENT SCIENCE
• Forecasting - is a technique for making predictions of the direction of future trends based
on the analysis of past and present data. It is a decision-making tool that helps businesses
cope with the impact of the future’s uncertainty by analyzing historical data and trends. And
it’s a planning tool that enables businesses to chart their next moves and create strategies
that will hopefully cover whatever uncertainties may occur.
• Moving average method uses the average of the most recent k data values in the time
series as the forecast for the next period. The term moving is used because every time a
new observation becomes available for the time series, it replaces the oldest observation in
the equation and a new average is computed. As a result, the average will change, or move,
as new observations become available.

• Weighted Moving Average


In the moving average method, each observation in the moving average calculation receives
the same weight. One variation, known as weighted moving average, involves selecting a
different weight for each data value and then computing a weighted average of the most
recent k values as the forecast. In most cases, the most recent observation receives the most
weight, and the weight decreases for older data values.
• Exponential smoothing also uses a weighted average of past time series values as a fore-
cast; it is a special case of the weighted moving averages method in which we select only
one weight - the weight for the most recent observation. The weights for the other data
values are computed automatically and become smaller as the observations move farther
into the past. The exponential smoothing equation follows.
•
• Forecasting – Moving Average
•

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