3. Jim is a department manager at a local department store. He took statistics a
ID: 3203623 • Letter: 3
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3. Jim is a department manager at a local department store. He took statistics and operations management in college and has recently forecast sales of toasters using a combination of forecasting methods and his expertise/experiences as below: (5 pts) Exponential smoothing w Actual Manager's secret Forecast Naive Forecast 3 Month Moving Average Manager Unit No. Month Error Naive Sales Forecast January S2 00 000 000 2 February 61 March 75 61 55.60 17.40 I9 September 30 52 22 44 44 -14 14 4733 173 50.23 .20.89 20.88 10 October 55 42 13 169 30 25 2S 40 33 14 67 53 1247 1247 E 00 31.00 12 Decmber 75 74 53.00 58.11. SUM Calculate the forecasting error, Mean Squared Error (MSE) for the manager's forecast and all the other forecasts. Which method seems most appropriate among proposed forecasting approaches? Why? (Please show all your procedures and state your reasons using the forecasting errors.)Explanation / Answer
The formula for Mean Squared Error, is as follows:
MSE=sigma Error^2/n
Substitute n=9, and Error^2=1466 in the given formula.
MSE (manager's secret forecast)=1466/9=162.89
MSE (naive forecast)=120/10=12
MSE(3-month moving average)=136/8=17
MSE (Exponential smoothing)=148/11=13.45
According to the findings, naive forecast contains least error, therefore, it is recommended.
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Formula for Mean absolute deviation is as follows;
MAD=sigma |error|/n
MAD (naive approach)=25/7=3.57
MAD (3 month moving average)=16/5=3.2
MAD (weighted 3 month moving average)=19.3/5=3.86
MAD (Exponential smoothing method)=24.49/8=3.06
Exponential smoothing method has least forecasting error, therefore, it is recommended.
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