Forecasting Methods

Written on 8:59 AM by Shaun Hutchings

Here are a couple forecasting methods that we learned that we can and will be able to use throughout my career.  There is MANY more forecasting methods but here are a few of the them.

• Moving average (it can be 2, 3, 4, 5, etc. month moving average)
• This is basically averaging up the last several months/days sales or demand to forecast next months sales or demand

• Weighted Moving Average
• It is similar to the moving average but instead of just taking the average of the last several months or days you place weights to each one.  This tells us that one month/day should effect the forecast more than the other ones and etc.

• Exponential Smoothing
• This is when you use an alpha to smooth out the averages to adjust to variation and fluctuation.  The alpha has not boundaries and it can be set high or set low.  The only way to find out if alpha is at a good level or not is by testing your forecast which we will talk about in a future blog.

• Trend Function
• Usually you can find this by using the trend function in excel.  There are other methods to figure out the trend function.  But to find out if the trend function is appropriate for your data you much test the regression and correlation between the demand/sales with another variable (if it be time or other set of data associated with the data)
• Seasonal Variation
• Usually sales especially retail can be seasonal with higher demands at certain times a year.  You can use a seasonal index to build a forecast for different seasons and times throughout the year.
• Forecast Including Trend
• This is a little more complex way of calculating forecast but this includes smoothing the forecast and then including a trend that is also smoothed.  

Posted in Business, Business Management, BYUI, Emphasis, Forecasting, Risk and Flexibility Management, Supply Chain Management