• 15 Marks

QT – May 2019 – L1 – Q5b – Forecasting

Compute 5-period moving averages, weighted moving averages, and comment on their suitability for forecasting

The number of enquiries being made to a mail order business during a Monday to Friday working week is given as:

Week Monday Tuesday Wednesday Thursday Friday
1 34 36 24 25 41
2 33 34 24 23 43
3 35 37 25 25 47

Required: i) Plot the data on a graph.
ii) Compute a 5-period moving average for the data.
iii) Compute a ‘weighted’ moving average for the data if the smoothing constant is α=0.5.
iv) Superimpose the graphs of (ii) and (iii) on your graph in (i) above.
v) Comment on the suitability of the two smoothing methods above. (16 marks)

i) – iii)

iv)

v) Comment on the suitability of the two smoothing methods:

  • The weighted moving average method approximates the actual number of enquiries more accurately, as it assigns more importance to recent data and responds faster to changes in the data.
  • The 5-period moving average method smooths out the data effectively but is slower to adjust to recent trends since it gives equal weight to all data points over the 5 periods.
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