A large health maintenance organization (HMO) was created as a result of a corpo
ID: 413404 • Letter: A
Question
A large health maintenance organization (HMO) was created as a result of a corporate merger two years ago. To help in preparing a staffing plan, the operations manager needs to develop a forecast for the Number of Lawsuits for Month 25. Following is the Number of Lawsuits for the past 24 months.
Month
Number of Lawsuits
Month
Number of Lawsuits
Month
Number of Lawsuits
1
16
9
51
17
63
2
25
10
56
18
57
3
16
11
67
19
48
4
24
12
45
20
55
5
38
13
53
21
61
6
46
14
61
22
51
7
54
15
55
23
56
8
52
16
69
24
53
Calculate your forecast results to one (1) decimal place (xx.x).
a) Make a forecast for the Number of Lawsuits for Month 25 using the moving average, weighted moving average and exponential smoothing forecasting methods on the following basis:
For the moving average, use a four-period moving average
For the weighted moving average, use a three-period weighted moving average with a weight of 0.70 for the most recent period, 0.20 for the next most recent period and the appropriate weight for the third most recent period.
For exponential smoothing, using an = 0.30, and the forecast for the Number of Lawsuits for Month 16 is 70.
b)From the results of a), which method provides the better forecast for Month 25? Why? Your selection criteria must be based on one of the numerical evaluation methods we used in our related homework problem using the forecast results for Month 20 through Month 24. Only saying “it is the easier method” is not acceptable.
Month
Number of Lawsuits
Month
Number of Lawsuits
Month
Number of Lawsuits
1
16
9
51
17
63
2
25
10
56
18
57
3
16
11
67
19
48
4
24
12
45
20
55
5
38
13
53
21
61
6
46
14
61
22
51
7
54
15
55
23
56
8
52
16
69
24
53
Explanation / Answer
a) Moving Average using a four period moving average for the 25th month is
=(M21 + M22 + M23+ M24)/4
=(61+51+56+53)/4
= 221/4
= 55.25
Weighted Moving Average using three period weighted moving average
M25 = 0.7 * 53 + 0.2 * 56 + 51
= 37.1 + 28 + 51
= 116.1
Moving Average exponential smoothing where coefficient = 0.3
M17 = 0.3 * 70 + 0.7 * 70
= 70
M18 = 0.3 * 70 + 0.7 * 63
= 65.1
M19 = 0.3 * 65.1 + 0.7 * 57
= 59.43
M20 = 0.3 * 59.43 + 0.7 * 48
= 51.429
M21 = 0.3 * 51.429 + 0.7 * 55
= 53.928
M22 = 0.3 * 53.928 + 0.7 * 61
= 58.87
M23 = 58.87 * 0.3 + 0.7 * 51
= 53.36
M24 = 53.36 * 0.3 + 0.7 * 56
= 55.208
M25 = 55.208 * 0.3 + 0.7 * 53
= 53.66
b) From the results obtained, according to me exponential smoothing is the most appropriate and valid because the value is obtained based on quite a few demand forecast, therefore the value obyained is dependent on more than one value.
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