CHAPTER 10

FORECASTING
SOLUTION TO SOLVED PROBLEMS
10.S1 Forecasting Charitable Donations at the Union Mission
Cash donations (in thousands of dollars) at the Union Mission for 2011-2013 were as shown
below.
Quarter
Q1 2008
Q2 2008
Q3 2008
Q4 2008

Donations Quarter
242
Q1 2009
282
Q2 2009
254
Q3 2009
345
Q4 2009

Donations Quarter
253
Q1 2010
290
Q2 2010
262
Q3 2010
352
Q4 2010

Donations
270
286
271
378

a. Ignoring seasonal effects, compare both the MAD and MSE values for the last value method,
the averaging method, the moving average method (based on the most recent 4 quarters), the
exponential smoothing method (with an initial estimate of 275 and a smoothing constant of
= 0.2), and the exponential smoothing method with trend (with initial estimates of 275 for the
average value, 2 for the trend, along with smoothing constants of = 0.2 and = 0.2) when
they are applied retrospectively to the years 2011-2013.

Each of these methods are applied below, using the appropriate template from your MS
Courseware.
A
1
2
3
4
5
6
7

8
9
10
11
12
13
14
15
16
17

Template for Last-Value Forecasting Method

Time
Period
1
2
3
4
5
6
7
8
9
10
11
12
13

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Last-Value
Forecast

Forecasting
Error

242
282
254
345
253
290
262
352
270
286
271
378

40
28
91
92
37
28
90
82
16
15
107

Mean Absolute Deviation

MAD =
57
Mean Square Error
MSE =
4,367

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Template for Averaging Forecasting Method

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

Time
Period
1
2
3
4
5
6
7
8
9
10
11
12
13

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Averaging
Forecast

Forecasting
Error

242
262
259
281
275
278
275
285
283
284
282
290

40
8
86
28
15
16
77
15
3
13
96

Mean Absolute Deviation

MAD =
36
Mean Square Error
MSE =
2,329

Template for Moving-Average Forecasting Method

Time
Period
1
2
3
4
5
6
7
8
9
10
11
12
13

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Moving
Average
Forecast

Forecasting
Error

#N/A
#N/A
#N/A
281
284
286
288
289
294
293
295
301

Number of previous
periods to consider
n=
4
Mean Absolute Deviation
MAD =
32

28
7
24
65
19
8
22
83

Mean Square Error

MSE =
1,668

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

Template for Exponential Smoothing Forecasting Method

Time
Period
1
2
3
4
5
6
7
8
9
10
11
12
13
A

Exponential
Smoothing
Forecast
275
268
271
268
283
277
280
276
291
287
287
284
303

True
Value
242
282
254
345
253
290
262
352
270
286
271
378
C

Forecasting
Error
33
14
17
77
30
13
18
76
21
1
16
94

Smoothing Constant
=

0.2

Initial Estimate
Average =

275

Mean Absolute Deviation

MAD =
34
Mean Square Error
MSE =

2,024

Template for Exponential Smoothing Forecasting Method with Trend

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

Time
Period
1
2
3
4
5
6
7
8
9
10
11
12
13

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Latest
Trend
-8.5
3.8
-4.7
23.0
-6.4
4.0
-5.3
21.6
-5.0
-1.2
-6.3
26.0

Estimated
Trend
2.0
-1.2
0.3
-1.2
6.1
2.3
2.8
0.4
6.8
3.2
1.9
-0.6
7.4

Exponential
Smoothing
Forecast
277
265
271
265
295
285
289
281
309
301
298
289
323

Forecasting
Error
35
17
17
80
42
5
27
71
39
15
27
89

Smoothing Constants
=
0.3
=
0.3
Initial Estimates
Average =
Trend =

275
2

Mean Absolute Deviation

MAD =
38.6
Mean Square Error
MSE =
2,174.2

b. Determine the seasonal factors for the four quarters.

The seasonal factors are determined using the template in your MS Courseware, as shown
below. The seasonal factors are 0.8780, 0.9848, 0.9033, and 1.2339 for quarters 1, 2, 3, and
4, respectively.

A

Template for Seasonal Factors

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Year
1
1
1
1
2
2
2
2
3
3
3
3

Quarter
1
2
3
4
1
2
3
4
1
2
3
4

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Type of Seasonality
Quarterly

Estimate for
Seasonal Factor
0.8780
0.9848
0.9033
1.2339

Quarter
1
2
3
4

c. Repeat part a, but now considering the seasonal effects.

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Template for Last-Value Forecasting Method with Seasonality

Year
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6

Quarter
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Seasonally
Adjusted
Value
276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Seasonally
Adjusted
Forecast

Actual
Forecast

Forecasting
Error

271
259
347
245
284
266
358
250
303
262
370
269

11
5
2
8
6
4
6
20
17
9
8

276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Type of Seasonality
Quarterly
Quarter
1
2
3
4

Seasonal Factor
0.878
0.985
0.903
1.234
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

Mean Absolute Deviation

MAD =
8.5
Mean Square Error
MSE =

99

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

Template for Averaging Forecasting Method with Seasonality

Year
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6

Quarter
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Seasonally
Adjusted
Value
276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Seasonally
Adjusted
Forecast

Actual
Forecast

Forecasting
Error

276
281
281
281
282
284
285
285
288
288
289
290
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

271
254
347
246
278
257
352
250
283
260
357
255

11
0
2
7
12
5
0
20
3
11
21

Type of Seasonality
Quarterly
Quarter
1
2
3
4

Seasonal Factor
0.878
0.985
0.903
1.234
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

Mean Absolute Deviation

MAD =
8.33
Mean Square Error
MSE =
118.86
H

Template for Moving-Average Forecasting Method with Seasonality

Year
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6

Quarter
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Seasonally
Adjusted
Value
276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Seasonally
Adjusted
Forecast

Actual
Forecast

#N/A
#N/A
#N/A
281
284
286
288
289
294
293
296
301
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Forecasting
Error

Number of previous
periods to consider
n=

Type of Seasonality
Quarterly
246
280
258
355
254
290
265
365
264

7
10
4
3
16
4
6
13

Quarter
1
2
3
4

Seasonal Factor
0.878
0.985
0.903
1.234
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

Mean Absolute Deviation

MAD =
7.9
Mean Square Error
MSE =

81.3

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

Template for Exponential Smoothing Forecasting Method with Seasonality

Year
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
7
7

Quarter
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2

Seasonally
Adjusted
Value
276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Seasonally
Adjusted
Forecast
275
275
277
278
278
280
283
285
285
289
289
292
295
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Actual
Forecast
241
271
251
343
244
276
256
351
250
285
262
360
259

Forecasting
Error
1
11
3
2
9
14
6
1
20
1
9
18

Smoothing Constant
=

0.2

Initial Estimate
Average =

275
Type of Seasonality
Quarterly

Quarter
1
2
3
4

Seasonal Factor
0.878
0.985
0.903
1.234
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

Mean Absolute Deviation

MAD =
7.9
Mean Square Error
MSE =

105.5

Template for Exponential-Smoothing with Trend Forecasting Method with Seasonality

Year
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
7
7
7
7

Quarter
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

True
Value
242
282
254
345
253
290
262
352
270
286
271
378

Seasonally
Adjusted
Value
276
286
281
280
288
294
290
285
308
290
300
306
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Latest
Trend
1.7
3.5
2.0
1.2
2.5
3.4
2.0
0.6
4.7
0.7
2.2
3.1

Estimated
Trend
2.0
1.9
2.3
2.2
2.0
2.1
2.4
2.3
2.0
2.5
2.2
2.2
2.4

Seasonally
Adjusted
Forecast
277
279
282
284
285
288
292
294
294
299
300
302
305
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A
#N/A

Actual
Forecast
243
274
255
351
251
284
264
362
258
295
271
372
268

Forecasting
Error
1
8
1
6
2
6
2
10
12
9
0
6

Smoothing Constant
=
=

0.2
0.2

Initial Estimate
Average =
Trend =

275
2
Type of Seasonality
Quarterly

Quarter
1
2
3
4

Seasonal Factor
0.878
0.985
0.903
1.234
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00

Mean Absolute Deviation

MAD =
5
Mean Square Error
MSE =

41

d. Using the forecasting method from part a or c with the lowest MAD value, make long-range
forecasts for charitable donations in each of the quarters of 2014.

The forecasting method from part a or c with the lowest MAD value is the exponential-
smoothing with trend forecasting method with seasonality.

From part c, the seasonally-adjusted forecast for Quarter 1 of 2014 is 305, leading to an
actual forecast of (0.878)(305) = $268 thousand.

The last estimated trend is 2.4. Therefore, the seasonally adjusted forecast for Quarter 2 of
2014 would be 305 + 2.4 = 307.4, leading to an actual forecast of (0.985)(307.4) = $303
thousand.

Similarly, the seasonally adjusted forecast for Quarter 3 of 2014 would be 307.4 + 2.4 =
309.8, leading to an actual forecast of (0.903)(309.8) = $280 thousand.

Similarly, the seasonally adjusted forecast for Quarter 4 of 2014 would be 309.8 + 2.4 =
312.2, leading to an actual forecast of (1.234)(312.2) = $385 thousand.