Example:
Compute a 3-period moving average forecast given demand for shopping carts
for the last five periods.
Period
Demand
1
42
2
40
3
43
4
40
5
41
t

6

DBH3
* A possible disadvantage is that all values in the average are weighted equally. For
example, in a 10-period moving average, each value has weight of 1/10. Hence, the oldest
value has the same weight as the most recent value. Decreasing the number of values in
the average increases in weight of more recent values.
Example 2:
Given the following data:
Period
No. of complaints
1
60
2
65
3
55
4
58
5
64
(a)
Use naive approach to make the forecast for the next period.
(b) Compute a 3-period moving average forecast.
Weighted moving average:
A weighted average is similar to the moving average, except that it assigns more weight
to the most recent values in a time series. For example, the most recent value might be
assigned a value of 0.4, the next most recent value a weight of 0.3, the next after that a
weight of 0.2, and the next after that a weight of 0.1. Note that the sum of the weights is
1.0.
The weighted moving average can be computed by the following formula
1
1
2
2
)
2
(
2
)
1
(
1
......
t
t
n
t
n
n
t
n
n
t
n
t
A
w
A
w
A
w
A
w
A
w
F
The advantage of a weighted average over a simple moving average is that the weighted
average is more reflective of the most recent occurrences. However, the choice of the
weight is somewhat arbitrary and generally involves the use of trial and error to find a
suitable weighting scheme.
Example 1:
Given the demand for shopping carts for the last five periods.
Period
Demand
1
42
2
40
3
43
4
40
5
41
(a)
Compute a weighted moving average forecast using a weight of 0.4 for the
most
recent period, 0.3 for the next most recent, 0.2 for the next, and the next after that
a weight of 0.1.
(b) If the actual demand for period 6 is 39, forecast demand for period 7 using the
same weights as in part (a).
7

DBH3

Example 2:
Given the following data:
Period
No. of complaints
1
60
2
65
3
55
4
58
5
64
(a) Compute a weighted moving average forecast using a weight of 0.4 for the most