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# ma12 - Quantitative Forecasting Methods(Moving Averages We...

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Quantitative Forecasting Methods (Moving Averages) We will discuss two moving average calculations: the simple moving average and the weighted moving average. Simple moving average: One quantitative technique that allows us to forecast demand based on past sales is the simple moving average. This series of arithmetic means is used if there is little or no trend. To calculate a moving average, we simply take the sum of the demand in the previous n periods and divide it by n number of periods. The moving average is better than simply transferring the actual sales in the past period forward to our forecast for this period, because it reduces the effect of any kind of recent spike due to randomness. For example, if we did an extraordinary amount of promotions in the previous period, the previous period’s sales number may be inflated. Taking a moving average smooths demand. Note that, using a simple moving average there will always be a lag between actual observations and the forecast. The farther back in the

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