Forecasting Module 2 By Sue B. Schou Phone: 8-282-408 Email: schosue@isu.edu Learning Objectives Make forecast models using trend analysis in Minitab Make forecast models using Holt s exponential smoothing in Minitab Determine best forecast model Trended Data Graph time series data to ensure it is trended only. Make all possible forecast models appropriate for the data. Compare the models using a measure of forecast error. Choose the best model. 1
Graph Data Net Sales for Kodak Co (in millions) 182 18 184 18 18 187 188 18 10 11 12 1 14 Year 1 1 17 18 1 00 01 02 0 04 Trend Analysis: Linear Trend Analysis: Linear Trend Analysis Plot for Linear Trend Model Yt = 0.40071 + 0.8002*t Variable Actual Fits MAPE 1.202 MAD 1.0824 MSD 1.7004 0 12 Index 18 21 24 2
Trend Analysis: Linear Trend Analysis for Data Length 2 NMissing 0 Fitted Trend Equation Yt = 0.40071 + 0.8002*t MAPE 1.202 MAD 1.0824 MSD 1.7004 Period Forecast 24 1.07 2.4082 2 21.8 for the next three years Trend Analysis: Quadratic Trend Analysis Plot for Quadratic Trend Model Yt = 2.40 + 0.28*t + 0.02241*t**2 2 Variable Actual Fits MAPE.7844 MAD 0.721 MSD 0.141 0 12 Index 18 21 24 Trend Analysis: Quadratic Trend Analysis for Data Length 2 NMissing 0 Fitted Trend Equation Yt = 2.40 + 0.28*t + 0.02241*t**2 MAPE.7844 MAD 0.721 MSD 0.141 Period Forecast 24 21.842 2 2. 2 24.01
Trend Analysis: Exponential Trend Analysis Plot for Growth Curve Model Yt = 2.887 * (1.071**t) 0 2 Variable Actual Fits MAPE 8.14 MAD 0.847 MSD 1.27 0 12 Index 18 21 24 Trend Analysis: Exponential Trend Analysis for Data Length 2 NMissing 0 Fitted Trend Equation Yt = 2.887 * (1.071**t) MAPE 8.14 MAD 0.847 MSD 1.27 Measures of forecast error Period Forecast 24 24.7872 2 27. 2 2.04 Comparing Models Measures of Forecast Error MAPE: Mean Absolute Percentage Error MAD: Mean Absolute Deviation MSD: Mean Square Deviation 4
Comparing Models Use any one of the measures of forecast error Least error is best Look for the smallest number Comparing Models Linear Quadratic Exponential -------------------------------------- MAPE 1.20.784 8.14 MAD 1.0824 0.72 0.847 MSD 1.7004 0.14 1.27 Quiz Time Which is the best model of the three done so far: linear, quadratic, or exponential? Linear Quadratic Exponential -------------------------------------- MSD 1.7004 0.14 1.27
Answer The quadratic model is best since it has the lowest MSD. You could have used any of the other measures of forecast error and still had the same answer. Holt s Exponential Smoothing Called double exponential smoothing in Minitab Requires setting of two parameters: level and trend Choose numbers between.1 and. May choose to let computer optimize Parameters must be between 0 and 1 Holt s Exponential Smoothing
Holt s Exponential Smoothing Double Exponential Smoothing Plot for 2 Variable Actual Fits.0% PI Smoothing Constants Alpha (level) 1.17 Gamma (trend) 0.02828 MA PE 4.4127 MA D 0.42 MSD 0.42 0 12 18 21 24 Index Holt s Exponential Smoothing Holt s Exponential Smoothing Double Exponential Smoothing Plot for 2 Variable Actual Fits.0% PI Smoothing Constants Alpha (level) 0. Gamma (trend) 0.1 MA PE.111 MAD 0.7422 MSD 0.8727 0 12 18 21 24 Index 7
Holt s Exponential Smoothing Double Exponential Smoothing for Data Length 2 Smoothing Constants Alpha (level) 0. Gamma (trend) 0.1 MAPE.111 MAD 0.7422 MSD 0.8727 Period Forecast Lower Upper 24 21.02 1.4 22.7141 2 21.1 1.0 24.4 2 22.240 1.8070 2.040 Comparing Models Holt s Quadratic -------------------------------- MSD 0.8727 0.141 Quiz Time Which model is the best forecast model---holt s exponential smoothing or the quadratic model? Holt s Quadratic -------------------------------- MSD 0.8727 0.141 8
Answer The Holt s exponential smoothing model is the best model because it has the lowest MSD. Trended Data Graph time series data to ensure it is trended only. Make all possible forecast models appropriate for the data. Compare the models using a measure of forecast error. Choose the best model. Minitab Instructions Available on the website Trend Analysis video Holt s Exponential Smoothing video Handouts with written instructions
Assignment Located on the website: - problems to work -answers available Questions? Statistics Lab located in BA 111 Hours: MW 4-pm TTH :-pm F 12-2pm